Black Swan events are by their nature, impossible to predict, and thus horribly difficult and expensive to defend against. To credibly prepare against every possible scenario, you would need to take a very wide range of precautions. Unfortunately, these “rare occurrences” also seem to be happening with greater frequency, and their impacts much more far-reaching. When you consider how connected and vast our global supply chains are, relatively small, unpredicted events can have significantly exaggerated impacts on activities downstream.
Consider the current worldwide crisis caused by the novel Coronavirus, COVID-19. Severe interruptions in manufacturing and logistics are coupled with travel disruptions and wildly divergent consumer behaviors. It’s a double whammy, where product availability is unknown in terms of timing and volume, and demand behaviors are constantly changing as the situation evolves.
According to a recent survey by the Institute for Supply Management, 57% of respondents are noting longer lead times for China-sourced goods, with average lead times more than doubling compared to the end of 2019. Additionally, 53% are reporting challenges getting supply chain information from China. The lack of information sharing and collaboration only exacerbates the problem by forcing teams responsible for responding to the shifting landscape to react using “gut instinct” rather than weighing options objectively.
Of course, the Coronavirus situation is an extreme example. More typical disruptions aren’t as global in their impact, such as localized weather events that knock out key supplier capabilities and cause logistical problems, or material shortages that result in availability constraints that may or may not be predictable. Yet a universal theme in all these situations is how the ability to effectively respond is dependent on access to current information in a usable form.
The role of supply chain visibility
What are your teams trying to do when these disruptions hit? Often, it’s finding the data to answer key questions (which are not really different than what you need to know in normal times, just with greater urgency), such as:
- Where is my product right now? Where will it be tomorrow and the day after that?
- How much can I make, and where should it go?
- Where is the product needed right now to meet true demand?
- How is this demand different than what I planned for, and what actions do I need to take to re-align supply to be where it will have the most benefit?
- What can I re-route and/or expedite without creating additional problems? Is it worth the cost?
If you had end-to-end supply chain visibility, the process for answering these questions could be as quick as a few clicks. The reality, though, is that the necessary information sits in too many different places, owned by different partners.
- Current Inventory: Manufacturer/Co-Manufacturing ERP, Distributor ERP, Retailer ERP
- Material Supply Inventory: Strategic Supplier ERP
- Projected Inventory: Manufacturer Excel
- Current Demand: Retailer ERP
- Forecasted Demand: Manufacturer Forecast Tools, Retailer Forecast Tools
Gathering and harmonizing all this data from separate systems that each have their own “language” can take teams of analysts, managers, and directors days, if not weeks. Even then, you only have it for a handful of your top velocity items, and it’s out of date the minute it’s produced! Because of the time it takes and how quickly the environment is changing, the answers are largely directional at best. As a result, most decisions made are based on intuition and responding to the squeakiest wheels, or the “most important” customers.
Building a digital supply chain
A truly effective crisis response requires taking visibility one step further. You need access to the above information in as near real-time as possible, and the ability to map it into an accurate representation of your supply chain network that’s dynamically updated as new information flows in.
- Current inventory at every location, including retail DCs and stores
- In-transit and projected inventory levels at every location
- Current and forecasted demand by SKU
- Current shipment lanes and lead times based on transaction-level detail (Purchase Orders, shipments, receipts)
- Translated inventory health at each location (e.g., Days On-Hand, Weeks of Supply)
This digital supply chain enables you to quickly make decisions on expediting, inventory allocation, and manufacturing capacity because you have a comprehensive picture of supply, relative to demand, and know the relationships between locations. That means responding to deviations from plans in your supply chain in minutes, instead of days, and based on data, not who demands the most attention. If the situation changes again, you can continuously optimize supply.
Whether an event is temporary, sustained, or the outcomes are still unknown, you are responding earlier—when risks can most easily be mitigated, costs and business impacts are lowest, and the opportunity to be captured is the greatest.
Invest in supply chain resilience
Solutions meant to help in times of crisis can be difficult to justify, but the benefits of a digital supply chain extend beyond responding to supply chain disruptions. A resilient supply chain is one that also bounces back quickly from unexpected demand changes when it doesn’t follow forecast. It can drive measurable improvements in on-shelf availability throughout the year, and has been shown to strengthen bottom lines by reducing returns and markdowns while growing sales in existing channels.
We invest in improving forecast accuracy, yet an errant snowstorm or plant fire can impact actual performance by thousands of basis points in a matter of days. The value of a highly precise forecast rapidly diminishes if the team can’t respond immediately and effectively regardless of the nature of the disruption.
Supply chain visibility is one of the most addressable challenges today with a modern, purpose-built solution. Please reach out to learn more about how Alloy enables continuous supply optimization.