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Supply Chain Optimization Challenges in times of Disruption

supply chain optimization challenges

When was the last time you went to your neighborhood Home Depot? The pandemic has indeed changed everything about how we go about life and work.

As the largest home improvement retailer in the United States, Home Depot is an excellent example of a business powered by an evolving global supply chain. Home Depot had transformed its supply chain in 2018, which led to aggressive growth and investment return. This success is attributed to the significant investment by Home Depot in telematics and routing solutions to drive increased revenues. Along with experimenting in crowdsourced deliveries in cars, Home Depot succeeded in giving customers a well-defined delivery window of two to four hours thanks to investing in a transport management system. In other words, by optimizing their supply chain, Home Depot improved customer satisfaction and turnaround time, leading to increased overall revenue. Home Depot’s success story changed the context of using improved transportation management to grow sales, and not just reduce costs.

Supply chain optimization and challenges

The Home Depot story above highlights an aspect of supply chain optimization to drive business growth. Supply Chain Management or SCM involves facilitating the end-to-end movement of goods from the point of origin to consumption. SCM includes the movement and storage of raw materials, work-in-process inventory, and finished goods. If the supply chain pipeline is optimized, it leads to a host of competitive advantages such as reduced operating costs, efficient utilization of resources, faster deliverability of goods, and eventually, revenue realization.

Sounds simple? If only.

Just because the business has put in place a robust network design evaluation, demand-supply planning processes, cost management, operational capacity planning, and a team, it does not guarantee success in today’s marketplace. Because of ever-increasing challenges, continuous supply chain management is the management norm in most supply chain driven organizations.

The challenges straddle the entire spectrum, from uncertain macroeconomic environments to the challenge of building talent to manage supply chain uncertainties. Pandemic, geopolitics, international complexities, fickle consumer demands, data deluge, regulation, taxation, and more routes to market are some obstacles; supply chain managers need to maneuver. Nevertheless, it is of paramount importance for the supply chain to continually evolve to take on a dynamic 21st century.

Business Environment

Economic pressure, trade dispute, and global health crises are unpredictable difficulties that can severely impair the supply chain. This pressure can add risks that magnify as time goes on, leading to downturns or even a collapse in the supply chain ecosystem. Therefore, it is necessary to have a protocol in place for such situations. If suppliers, clients, and logistics are spread around the world, there needs to be careful management and coordination because of regulatory differences, taxation changes, different time zones, and at times, cultural peculiarities.

If humankind thought it had seen everything, in came the COVID-19 pandemic. Global supply chains froze overnight. This blog had written how COVID-19 was a wake-up call for accelerating digital transformation.

Fickle Customers

World commerce is on the fingertips of customers, literally. Digital and mobile commerce have transformed how humankind buys. Not to mention, the plethora of options and flexibility to make purchases, anytime anywhere.

The customer is truly empowered. It would not be incorrect to sum it up this way – “Customers are dictating the market.”

The team at Chain Analytics put forth two interesting sub-themes emerging in the context of changing customer preferences.

Omni-Channel is the only channel

Many organizations have difficulty implementing a solid strategy for their supply chain to handle the shift in consumer behavior and demands effectively. A common misconception in the industry is that omnichannel offerings would only be a B2C problem. While omnichannel distribution originated in the B2C space and still primarily exists, its influence is rapidly spreading in the B2B marketplace. A critical shortcoming is that many manufacturers are unprepared to meet the operational requirements needed for direct-to-consumer fulfillment, which is different from traditional B2B distribution.

Many segments, many supply chains

Meeting the unique requirements of clients is another big hurdle for most manufacturers. A “one size fits all” approach does not seem to be a sensible go-to-market (GTM) strategy since retail customers will have different requirements than industrial or large-scale customers. And even within industrial customers, bulk buyers will have different priorities. Besides this, different customers will prioritize different needs. For example, some customers might look for a cost-effective service while another is willing to pay a premium just for reliability.

Supply chain practitioners are submitting to the reality of multiple supply chains to address different segments and be agile to newer evolving segments. Surveys have concluded that three to five supply chains are considered manageable.

Look into your Supply Chain

Isn’t there always an opportunity in the existing supply chain to optimize? The following factors under the apparent control of internal teams have a role to play in reducing costs and improving performance.

  • Location – Deciding the location of factories and stocking facilities is never easy. Should the plants be located closer to the customers or raw materials? These decisions determine the time to market and eventually, market share and sales.
  • Production – Production planning is a common and age-old problem and a complete function of demand forecasting.
  • Inventory – Inventory management costs companies up to 40% of the total value, thus becoming an essential variable in the supply chain optimization equation.

Data Demons

Data, data everywhere but a legitimate struggle to make sense of all of it. In a dated survey by ICRON of over 100 supply chain managers, “What was their greatest supply chain optimization challenge?”

  • 30% of respondents said “having access to customer data,” 
  • 24% said “having the right data available at the right times,”
  • 22% said “coping with unexpected events,” and
  • 20% “predicting market trends” with 20%.

Data is critical to supply chain planning. Successful projections and operational plans are a function of data that is relevant and accurate. The inability to access quality and relevant data can put paid to supply chain optimization. It also brings into account costs related to data collection, cleaning, data enrichment, storage, access, and security, thus adding another dimension to the data challenge.

Investment in supply chain analytics may come in handy to solve this data problem. For example, one of the biggest challenges companies face is collecting customer data and extracting relevant information to drive real-time decision-making. Analytics can separate relevant information from a big pool of customer data and make the right recommendations to address demand or service. The stick-on wireless buttons of Amazon’s Dash service allowed consumers to quickly reorder regular household items, like washing powder or razor blades, with a quick push. The data points from such internet-connected devices will ultimately forecast demand in real-time.

VUCA World

VUCA isn’t new to the supply chain. It has tossed over many perfect supply chain optimization programs. Volatility, uncertainty, complexity, and ambiguity isn’t precisely what supply chain managers look forward to. But over the years, most have accepted it as permanent.

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