Understanding and Addressing Supply Chain Disruption Today
Written by Gordon Maddock, Regional Vice President, Broad Markets, Appian APAC
Supply chain challenges are exceedingly complex, and a change at any one point affects everything else in the system. Raw material shortages stifle manufacturing production. Shipping disruptions spike costs and delay products. Truck driver shortages leave products sitting in warehouses and increase lead times.
While you can’t always control every aspect of a supply chain, understanding the macro-factors that could impact on logistics performance is an important first step. So what factors are impacting global supply chains today and how can organisations develop greater resilience to overcome future challenges?
Disruption is (unfortunately) here to stay
The supply chain disruptions experienced over the past three years are (unfortunately) likely to continue. For starters, ripple effects from the pandemic are still slowing down deliveries and inflationary pressures are hiking up the prices of shipping and goods. Peter Liddell, Partner at KPMG, recently commented in the Appian 2023 Supply Chain Outlook Whitepaper that infrastructure investments in the US and EU that were part of economic stimulus efforts “led to a run on manufacturing goods from China, causing shipping prices to rise at astronomical rates, leading to containers getting backed up in major global ports".
He also said that "Organisations will continue to have trouble with transport logistics as many of the global ocean freight providers haven't yet caught up to the demand. Even if we can get all the container ships we need into the ocean, we don’t always have the crews available, so you’ll continue to have an imbalance of supply and demand. There are also a number of global challenges contributing to the second wave of disruptions—for example, everyone is trying to get their hands on construction materials and equipment, which may slow down repairs and maintenance of critical assets or stall new capital projects (retail stores, distribution centres, manufacturing sites, etc.). Additionally, many industries producing critical components such as semiconductors, packaging, raw materials, etc., haven’t fully caught up. And with consumption so high, we could face shortages or run out of critical production inputs. This could lead to more supply imbalances for critical industries".
A key lesson from the last three years is that the worst changes in the supply chain are unforeseen. Increases in climate-related storms, issues with technology, or rapid shifts in customer demand (such as the run-on flu medicines) can all throw a spanner into supply chain operations. These hidden disruptions can shock a system already worn thin by pandemic ripple effects and geopolitical issues.
A need for greater supply chain resilience
The pandemic has laid bare the precarious balance in which our supply chains are held. The push for efficiency and keeping lean inventories led to an environment that allowed supply chains to break down too easily. Now and in the future, we can expect to see companies take measures to increase their ability to bounce back from turbulence.
Supply chain managers will make heavy use of technology to bolster their resilience efforts. This can come in the form of digital twins, predictive analytics, or automation tools that act as early warning systems for supply chain disruptions and allow groups to plan accordingly. In fact, Deepak Mavatoor, Managing Partner at Tata Consultancy Services, touched on the importance of scenario planning technology in the pandemic. He said, "The best companies have focused on scenario planning. In our personal lives, we think about contingencies—what happens when the kids aren’t on time, or your alarm clock doesn’t go off? In the professional world, we always plan for an ideal scenario. It’s hard to fathom when wars (like what is happening in Ukraine) break out, but we must consider them. Some of the best companies have run more 'what if' scenarios so they don’t fall into the trap of thinking 'this worked for the last eight years, so I’ll continue to do this’. They have the tools, processes, systems, and culture to handle these what-ifs. Some companies do sales and operations (S&OP) planning far more frequently—sometimes two or three times a week—which shifts the culture to be more scenario-planning-oriented".
Supply chain partners will be chosen more carefully
Another major supply chain change we’ll likely see is a widespread shift in vendor preferences. There are a number of conditions driving this. Reliability is big—Peter Liddell believes that many companies have shifted from using vendors in China to invest in more predictable Southeast Asian countries. He said, "With the combination of inflationary pressures, high shipping costs, and geopolitics putting pressure on energy and labour expenditures, we’re starting to see more investments into southeast Asian countries like Vietnam, Indonesia, and Thailand. This signals a shift away from Chinese manufacturing for many global corporations".
International politics also drive some vendor changes, as war or embargoes threaten trade. Environmental, social, and governance (ESG) regulations have also begun requiring companies to take a second look at their supply chain partners, assessing them on everything from carbon footprint to social issues like labour practices.
When choosing vendors, consider the full cost of doing business. The risk of a vendor with a long transit route delaying orders may pose a higher cost to a business than a slightly more expensive vendor who’s closer and can be more agile with delivery. Vlad Filippov, Founder and CEO of Spark Equation, offered some sage advice in this area: He suggested asking vendors about their technology investments, stating, “Instead of choosing the cheapest vendor, look for those who are investing in technology to be more sustainable and efficient”. When you choose vendors that invest in modern technology, they’ll have better quality products and services—and that can be very beneficial to your business.
Overcoming hiring challenges and staffing shortages
The shortage of experienced workers in the supply chain will continue to be a significant issue. Truck driver positions remain largely unfilled, manufacturing teams face widespread retirements leading to loss of institutional knowledge and supply chains have become increasingly technical, requiring workers with unique skills.
In this environment, companies will have to rely on technology and automation to bridge the gap. Take planning tasks done by supply chain managers, for example. Joaquim Duarte Oliveira, Supply Chain & Network Operations Leader at Deloitte, says, “In the near future, the vast majority of activities in supply chain planning will be handled by digital solutions, where predictability, scenario planning, visibility, and agility are the key elements, leveraged through decision intelligence and automation”. He claims that this will lead to planners dealing more with exceptions, rather than spending their time on the rote tasks they do today. It’s worth noting that this also allows anyone across any supply chain role to accomplish more, faster.
Enhance supply chain operations with technology
To improve supply chain performance, resilience, and overcome staffing issues, businesses must digitise as much of their supply chain as possible. This not only refers to digitising all internal processes, but it also applies to choosing technically savvy suppliers. Digitising helps connect systems across the supply chain so you can get data faster and receive early warning signals if something goes wrong.
Automation can play a critical role in developing more agility and resilience, but your business process automation strategy depends on what you do in the supply chain. For example, transportation companies might automate truck driver assignments, while retailers might automate restocking requests for procurement managers.
Businesses also need to make sure they have the right technology to facilitate these steps. A good supply chain automation platform can help unify data quickly, easily, and securely via data fabrics. Process automation tools—from workflow-based, low-code design to automation tools like bots and artificial intelligence—let you build applications and orchestrate processes between teams and people. Process mining tools can help you find potential areas for improvement and continuously optimise your processes for greater efficiency. Finally, a good platform allows you to deploy across multiple platforms to give a complete experience for users. This is critical for employees working in low-connectivity environments on mobile devices in the field.
Disruption in the supply chain is not going away. Changes will only accelerate. However, by understanding the factors impacting on supply chain performance and taking steps to improve operations with the right strategies and technologies, businesses can enhance their resilience and ability to adapt to future challenges.
For more information and to download the Appian 2023 Supply Chain Outlook Whitepaper, please visit: 2023 Supply Chain Outlook: Expert Advice on Thriving in Times of Change (appian.com)