Given the current economic challenges faced by every country in the world, there is a renewed and intense focus on targeting supply chain efficiency as companies look for ways to find a balance between cost savings and service delivery.
The volatility around how consumers, manufacturers, and other players within the supply chain are reacting to these economic challenges has supply chains under pressure, demanding agility in their approach, and innovative solutions in order to ensure that operations remain economically viable.
Addressing these issues means focusing on four critical factors going forward:
- Information = Agility
Cost-to-serve modelling is a quantitative method that shows supply chain or logistics costs by activity, in order to ascertain where the cost drivers are in the supply chain, and understand which components of the supply chain are profitable, and which are not.
Given falling demand, businesses will need to change the way they calculate their cost-to-serve, as the supply chain as we know it has fundamentally changed. Customer demographics and purchasing patterns have changed, as well as product demand, and businesses will have to adjust accordingly.
All businesses will need to undergo this exercise to remain competitive, as routes-to-market change during recessive economies, particularly when coupled with the effects of a nationwide lockdown. Customer behaviour also changes, impacted by a greater emphasis placed on value, reduced access to credit, economic growth, pricing pressures and depressed demand. Their responsiveness to new business challenges will define their continued sustainability, and information will be the key to their success.
- Stock Models and Inventory Planning
Holding high stock levels will no longer be a buffer for future demand, but a risk to be mitigated, and finding the balance will require an agile response based on up-to-date information.
Inventory management will require a much more flexible and dynamic view on driving stock availability as well as optimising working capital across the network, and access to real-time or near real-time data will be a critical factor in achieving this agility.
Data latency coupled with market unpredictability can bring critical uncertainties to supply chain planning. The benefits of using real-time data to modify inventory management include accommodating build-to-order and pull-manufacturing techniques, or using just-in-time replenishment to prevent over- or under-stocking, and thereby significantly reducing risk.
By improving access to and the insights gained from supply chain analytics, supply chain professionals will be able to more accurately predict inventory requirements. Decisions are data-driven, and product life cycles and fluctuating customer demands are better understood and provisioned for.
- Scenario Planning
In a volatile economic situation, understanding the efficiency of your supply chain network within a range of scenarios is critical to reducing supply chain costs. Designing a supply chain network with only one scenario in mind is risky, as it could be unfitting in terms of network size, reach and complexity in an fast changing environment.
By reviewing the structure and set-up of their networks, and planning for various envisaged scenarios, supply chain executives can drive cost savings, remain agile and have the tools at their disposal to manage their supply chains effectively and efficiently.
When networks are designed correctly, and scenario-planning is conducted proactively, decisions can be made quickly regarding outsourcing or insourcing, demand-driven capacity, operating costs and other factors that influence the supply chain to meet customer expectations.
- Consider Cost-savings from the Bottom Up
Transportation management and execution is a critical focal point in any supply chain and one of the most significant cost drivers. Every aspect of transportation management and execution needs to be reviewed during economically uncertain times if the supply chain is to be successfully optimised. This “bottom-up” approach based on first principles helps companies highlight where savings can be made, both on rates and utilisation.
Often inefficiencies present themselves in the combination of execution management and expense control – streamlining these factors using a first principles approach should be considered best practice, and is critical to providing the balance between service levels and cost control. Finding the ideal balance, considering various scenarios, is the best way to future-proof operations against uncertainty.