Six steps corporate and business leaders need to take to successfully manage the supply chain challenge.
Step 1: Improve Visibility
Visibility, forward to customers and backward to suppliers and logistics, is critical, says Evan Quasney, global vice president of supply chain solutions at planning and budgeting software firm Anaplan. Companies also need improved agility and collaboration. “Just seeing [problems] coming isn’t enough: Companies need to be able to understand the business implications and act,” he says. “Together, visibility and agility produce resilience.” While all companies have some visibility, a lag of over a week is typical. “Nowadays, they need daily or even intraday visibility,” says Quasney. Equally, the scope of visibility in the past was one-to-one; now, companies want to see further into the supply chain. The extra time created by improved visibility allows companies to better understand risks, potentially source alternative supplies or make other arrangements.
Step 2: Embrace Digital—Carefully
Many companies were already on a journey to digitalize their supply chain, and this is now being accelerated. BCG’s recent global survey of the consumer goods industry showed that a quarter of firms digitalized their supply chain operations and use artificial intelligence (AI) at scale in their supply chains, and 80% plan to do so in the next 18-24 months, notes Anastasia Kouvela, partner at BCG. She says that addressing supply chain problems is less about striving for perfection and more about creating structures that are fit for their purpose. “Companies need to ensure there is the right balance between human capabilities and digital infrastructure, so that the two are more than the sum of their parts.” In the short term, building new digital infrastructure will require investment. “But ultimately, the efficiencies generated can mitigate some of these costs,” she says. “Moreover, by being better able to sense demand, [there is] an opportunity to capture new growth.”
Step 3: Retain Inventory At Multiple Points
“We’ve managed to avoid gaps on shelves, because our planning strategy is always to have inventory in the supply chain at various points,” explains Fergus King, vice president of global supply chain, consumer products, at mapping- and geolocation-technology firm TomTom, which is now focused on software but continues to produce personal navigation devices. King says just-in-time supply chains are largely a myth outside the auto sector: The consumer electronics sector has lead times of 12-30 weeks; some components now require a commitment 52 weeks in advance, and there will be buffer stocks of at least a month. “We typically keep four to six weeks of inventory in our warehouses. Our partners, distributors and retailers keep eight to 14 weeks of inventory,” he adds.
Step 4: Strengthen Internal Coordination:
“Companies need to improve demand-and-supply planning so that they have a tighter “handshake” between the commercial and supply sides of a business, according to BCG’s Kouvela. “Sales and marketing need to be more proactive in communicating what is happening in the market, so that the supply chain is given more time to prepare,” she says. “The entire organization needs to focus on what is feasible given inventory, and design promotions and discounts accordingly.”
Step 5: Assess Supply Chains Holistically
Many companies, especially in sectors deemed critical by their governments, are seeking to build a more diverse portfolio of suppliers in order to de-risk the supply chain or even reshore production. The latter is not a panacea for all companies, however. Madhur Jha, head of thematic research at Standard Chartered, says that while AI and robotics could facilitate reshoring by lowering costs, her research shows that most firms still prefer China and Asia as their production base. “China and Asean countries [members of the Association of Southeast Asian Nations] have an infrastructure, regulatory and institutional setup that is hard to replicate elsewhere,” she notes.
Step 6. Support Suppliers
“Suppliers are proactively seeking alternative ways to access financing outside of traditional bank lending or factoring, [and some are] encouraging their customers to launch early payment options such as supplier finance and dynamic discounting,” says Matthew Fraser, working capital solutions head at Citi Commercial Bank. Buyers can respond by providing critical vendors with liquidity that—by leveraging the buyer’s credit rating—is offered at a lower cost than a supplier could usually achieve. As a result, explains Fraser, supplier finance can facilitate the production of goods during times of uncertainty and safeguard the overall sustainability of supply chains.