The Top 5 Challenges in the “New Normal” Supply Chain
Brian Hoey - February 02, 2021
From the outside, it might look like 2020 was a year of rapid change across ever sector of the supply. And while that’s certainly true, many of the trends that seemed new were actually already underway—they were just sped up considerably by the pandemic and its resulting effects. In a sense, this is good news. Why? Because it means that strategic technology and business process changes that many companies already saw on the horizon—such the introduction of AI and advanced analytics into the planning chain, the integration of real-time technology, or data-driven demand forecasting—are exactly the ones that are going to help supply chain businesses grapple with the new normal.
Don’t get us wrong, there will still be plenty of challenges to overcome, even for organizations whose digital transformations are well underway. But by understanding the nature of those challenges up front and choosing the right tools and tactics to deal with them, you can gain a competitive advantage in an increasingly volatile global supply chain.
1. Increasing Resilience
Okay, we admit that the first challenge on here is a bit of a doozy. But if we define resilience as the ability to successfully adapt to changing circumstances without huge disruptions, then it’s obvious that resilience has never been a more important trait for a supply chain—or a supply chain manager—to exhibit. So, how do you increase resilience? The short answer is that there are four pillars on which you need to focus:
- Cloud technology—simply put, on-prem technology deployments limit the ease of scalability, they limit data visibility, and they risk more and more compatibility issues as time goes on. All of these pitfalls can really limit your ability to adapt in a crisis.
- Digital twins—the purpose of a digital twin is twofold: to offer a real-time representation of your supply chain for tracking and monitoring purposes, and to offer a collaborative planning environment via a digital model of your entire supply chain. This empower faster identification of potential disruptions and more rapid and accurate replanning.
- AI and Machine Learning—this technology is essentially what power the digital twins we mentioned above, and it can also power improved forecasting and process optimizations. This gives you the ability to better identify and adapt to emerging supply chain conditions.
- CORE planning—as Gartner lays it out, the CORE planning model is a way to integrate different planning dimensions into a cohesive whole. The effect is that you can work towards a planning paradigm shift in which different functions all work together as part of a unified planning flow. This, in turn, helps break down silos and increase agility.
At a basic level, if you can integrate each of these elements into your technology and planning stack, you can gain the visibility, flexibility, and agility you need for true resilience.
2. Reserving Freight Capacity at Favorable Prices
Meeting the challenge above might seem incredibly daunting on its face. Luckily, by meeting the challenge of increasing resilience you can tackle other “new normal” challenges much more quickly and easily. For instance, integrating AI-based analytics flows into your operation can make it possible to forecast your logistics needs based on forecasted orders, combine that with price and capacity availability forecasts, and proactively determine your freight capacity needs outside the traditional 1-2 window for reserving transportation. Global competition for capacity has been heating up for quite a while, and getting the capacity you need in the right lane and mode is harder than ever. If your technology can empower you to reserve capacity more proactively (both by successfully projecting orders and by giving you the ability to reserve capacity for projected orders), you can gain an edge on the competition and cut down on the last minute scrambles that inevitably lead to exorbitant freight costs.
3. Combining BTO and BTS Models
In the same way that your forecasting needs to be powerful enough to expand your transportation scheduling horizon, you also want to incorporate projected orders into your production planning to the extent possible. If you’re able to do this, you can increase your resilience by effectively combing build-to-order (BTO) and build-to-stock (BTS) models. This makes you leaner and more agile (and thus reduces you capital commitments) without boosting your risk in the way that lean supply chain management often does. In this way, you can better position yourself to deal with the demand volatility, increased desire for customization, and heightened turnaround time expectations that often crop up in the modern marketplace.
4. Developing More Modular, Cost-Effective Supply Chains
One of the most striking impacts of the pandemic from a supply chain perspective is that threw the issues of single-sourcing into incredibly stark relief. Though many supply chain managers knew intellectually that a lack of visibility and diversity upstream in the value chain could be risky, a lot of folks found themselves on the receiving end of a crash course in just how risky it can be. Coming into 2021, enterprise businesses of all shapes and sizes will need to improve visibility into—and integration with—their suppliers, while working to build stronger, more flexible, and more diverse supplier relationships. This will be especially true as cost-pressures make it increasingly necessary to perform production activities in lower cost countries. Without the kind of connected, comprehensive, and data-driven processes that we alluded to above, managing the inherent complexity of a more modular supply chain will be incredibly difficult.
5. Reducing Costs
Last but not least, we get to cost reductions. The more we talk about fancy new technologies and the difficulty of getting favorable rates for freight capacity, the more it might seem like the only way to stay afloat is to have endless cash reserves at your disposal. Luckily, this couldn’t be farther from the truth. Yes, some technology improvements will require some upfront investment, but at the end of the day, deploying cloud technology, boosting your forecast quality, and changing your planning models are all tactics that are proven to reduce costs. In the era of the “new normal,” this is actually doesn't have to be your most difficult challenge.