3 Issues Your Supply Chain Must Know About
Keith LaBotz - October 14, 2021
Why visibility should be the top priority for supply chains
The supply chain recovery is entering a critical stage. How do you know if your company is focusing on the right things? Maybe we can find the answer. Let’s look at what other businesses are thinking and a few significant factors currently affecting supply chains.
Uncertain Road Ahead
The latest results from McKinsey’s study tracking the economic outlook of global executives are interesting. Executives choose a scenario that best reflects their view on COVIDs health effects and the effectiveness of governments’ public-health and economic-policy responses to it. Here’s a summary of the latest poll:
- The health risk from COVID has diminished.
- Government policies for economic recovery are viewed less favorably.
- Outlooks reflect differing political climates and levels of government intervention for each country.
- Aggregating the opinions from all countries presents a middle-of-the-road scenario, suggesting a “wait-and-see” posture for economic recovery and COVID’s demise.
- Outlooks fluctuated over time with the news cycle, dipping with each surge prediction and rebounding when surges did not materialize.
Let’s look at another recent survey of approximately 300 executives conducted by Harvard Business Review Analytic Services (HBRAS)reports:
- Only 8% of companies worldwide are digitally mature enough to mitigate supply chain disruptions.
- 70% are accelerating supply chain modernization, emphasizing collaboration tools and real-time demand forecasting analytics.
- 75% set achieving agility and business reliance as the top supply chain goals and reducing risks and costs.
- The "lack of real-time data about supply chain" is cited as the biggest obstacle for most companies.
Conclusion #1: Digitalization is Urgent
Thanks to unprecedented volatility, the vision of a seamless, transparent supply chain has suddenly has become urgent. This thirty-year-old goal rebranded as Supply Chain 4.0, supply chain digitalization, and visibility is the answer for preventing disruptions, optimization, and mitigating two major challenges currently afflicting supply chains:
- The transportation capacity crunch. Exacerbated by lockdowns, the crunch will remain until either enough drivers are hired to fill the void or transportation utilization dramatically improves. Companies that fail to address this will find it increasingly difficult to secure transportation, experience a decline in delivery performance, and face higher shipping costs.
- Unpredictability is the new norm, and it will subside once equilibrium is achieved, but not to pre-COVID levels. Even after lockdowns are far behind us, volatility will re-emerge with supply chain digitalization. The benefit of digitalization is optimized planning and execution, increasing changes in plans and execution (volatility).
What this means in practical terms is your enterprise needs intelligent apps to monitor unexpected changes in capacity, demand, and execution. For example, a dynamic routing solution like flexis ProfiTOUR can automatically alter a truck’s delivery route when traffic conditions change and compromise delivery commitments.
Your supply chain must be able to support this level of responsiveness to remain competitive. If your business can be a first-mover with some of these capabilities, it may gain market share and increase the bottom line.
Conclusion #2: 92% of Companies are Not Digitally Mature
Here is the other side of the 8% of companies claiming digital maturity. The HBRAS survey did not define digital maturity, so it appears to be a self-assessment. Let’s assume it means an enterprise that is the model of digital intelligence.
While digital maturity for an individual enterprise is as good as it gets for internal efficiencies, it only supports a limited range of options for mitigating supply chain disruptions. The game-changer of Supply Chain 4.0 involves the entire supply chain - a collaborative digital process formed by all partner systems in the chain. That requires 100% participation.
Supply chains are currently far from this ideal, and it won’t exist until the Supply Chain 4.0 riddle is solved. Digitalization will evolve, with integration progressing incrementally, one function at a time. Integrating with transportation networks and partner warehouse transactions is the best place to start supply chain digitalization.
Digitalization is a long-term process and it will require a longer timeline than the present economic recovery. If the recovery takes longer than the digitalization of the global supply chain, then we have far bigger problems we need to get working on. In the meantime, the path forward is increasing visibility regardless of how many economic cycles lie ahead.
Conclusion #3: Expect the Unexpected
A lot is going on right now socially, politically, economically, and all of these spheres overlap and shape the supply chain. The global supply chain transfers the effects of political policies in Germany to the US and vise-a-versa. What happens locally disrupts transportation for a factory in China. Perhaps this sense of uncertainty from around the globe is behind the “wait-and-see-see” outlook of executives. Maybe it’s creating an urgency to acquire more control through visibility initiatives.
Things can change quickly, and the consequences are global. In my last post, I mentioned the potential for a catastrophic supply chain failure triggered by vaccine mandates. Since then, a major US air carrier, Southwest Airlines, canceled thousands of flights. This came one day after the pilots union filed a lawsuit to block employer-mandated COVID-19 vaccines, but the union claims the disruption is unrelated to the mandate. Regardless of the cause, it’s a reminder of how quickly a risk like this can cripple a transportation network.
An estimated 30% of US airline pilots, aircraft mechanics, and ramp workers claim they will quit with a mandate, and 25% - 46% of American truck drivers will do the same. While you may understand the devastating impact of such an action, it is largely unappreciated outside logistics and transportation circles.
There is also a chance mandates will not be enforced in the US; they may be retracted or simply used for political theatre with minimal punitive measures. There are countless similar conflicts between businesses and governments around the globe. The problem with all of these is their impact on the global supply chain and on local economies far removed from the conflict.
Another problem affecting supply chain volatility and economic recovery is the lack of transparency and misinformation surrounding many conflicts. No matter our opinion on the issues, we all lose when there’s a lack of transparency from business and political leaders. Without reliable information, supply chains cannot assess risk, and that discourages investment and the healthy risk-taking needed for economic recovery.
The factors mentioned above and the resulting economic uncertainty translate to supply chain volatility. In conclusion #1, we noted visibility is the key to mitigating volatility risk, and we could say visibility is the supply chain’s remedy for unpredictable social, political, economic developments.
Our survey of these surveys yields a consistent answer - supply chains must increase visibility. Coming to the same conclusion is reassuring and a little boring. Given all the battles ahead, maybe boring isn’t so after all. Let me add this. Historic challenges also present historical opportunities, and the fact that you are reading this is a sign that you will likely make the most of this opportunity.
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