If there’s one thing the global pandemic has taught us, it’s that supply chains are fragile—real fragile. Because many of them were built without scalability and resilience in mind, they’re much more likely to cause barriers, delays or just simply collapse when disruption strikes.
However, as we continue to clean up the mess from the last two-plus years, we see that the future is filled with opportunity. Organizations are now realizing that bottlenecks in their supply chain can be traced back to the fact that they weren’t built to scale (in fact, Gartner highlights this weakness by pointing out that the majority were built with cost-efficiency at the forefront). As a result, the importance of building resiliency is now top of mind for many supply chain leaders.
But what’s the path to achieving that resiliency? A huge part is getting visibility—or the ability to track the moving parts of a product as it travels toward the end customer. You can’t manage or improve a system if you don’t have access to data in real time or if the data is opaque and blocked due to systemic or technological barriers. But these problems have been solvable for some time. So, why haven’t companies acted before now?
Many have been trying to build visibility systems for years with little success. The biggest reason is most of them are cumbersome, fragmented, rely on stressed IT resources and produce data that isn’t human-readable. Additionally, the overall supply chain strategy is often not aligned with the business to mitigate barriers or gaps across the network.
With that said, there are steps that can be taken to ensure you’re prepared for the unexpected. Here are some important considerations when looking into improvements for building a supply chain that can scale for the future.
Forecast demand with AI.
Artificial intelligence and machine learning have seen a huge jump in recent years, as the ability to leverage a reliable predictive model, coupled with historic data sets, can do wonders for anticipating future demand. When unforeseen spikes happen in certain areas of demand, you’ll need to have the ability to quickly scale up (or down).
A fine-tuned algorithm needs to take into account a number of factors like trends, leading and lagging indicators, seasonality, promotions and other drivers. AI models can improve efficiencies by reducing the guesswork from the process, reducing costs and saving time to focus on sales and operation planning. According to McKinsey Digital, AI-powered forecasting can reduce supply chain errors by 30% to 50%. This leads up to a 65% reduction in lost sales due to inventory stockouts.
Keep suppliers accountable.
Choosing solid partners that can respond quickly to demand changes—whether it’s up or down—will make or break your supply chain’s scalability. But how do you keep tabs on their performance?
The first way is to create a uniform set of business rules between the buyer and seller. The other way is to make sure you’re consistently tracking and evaluating the vendors by building reliable real-time scorecards. Selecting proper KPIs and scorecarding cycles are the key to success. This will enable you to dig deeper into transactions, identify which partners are struggling to keep up and work together with them to improve performance.
Another way is to implement and operationalize supplier compliance programs like advance ship notices, on-time in-full (OTIF) Union Customs Code (UCC) 128 and Expiration. These programs are invaluable when it comes to having an efficient, just-in-time supply chain and maintaining solid relationships with your suppliers.
Get a grip on chargebacks.
Chargebacks are not inevitable. However, whether you’re on the retailer or supplier side, they can turn into a major headache and a significant drain on time, resources and revenue (as much as 3% to 4% for some CPG companies) if you don’t have an effective way to manage them.
The key is to obtain buy-in throughout your culture when it comes to compliance. This will allow your teams to become self-sufficient when interacting with EDI and supply chain data—enabling them to uncover the root cause of every chargeback and collaborate across departments to solve them.
Set up a responsible sourcing strategy.
Having a multi-source strategy in place and several suppliers supporting the same supply base in different regions is always a smart move. Geographic supply redundancy and a reliable backup can make a huge difference in how a black swan event affects your overall operation. In fact, it may be the single most critical step for being able to respond quickly and effectively manage disruption. Continuing to identify new sources of supply will be an ongoing task.
Leverage the right technology.
Today’s pace of business makes it essential to obtain data in minutes, not hours. That’s why it’s critical to find a supply chain software that enables you to achieve real-time data visibility and collaborate with your internal teams and trading partners. You should also make sure it can integrate with your current systems (e.g., ERP) and scale with you as your business grows.
If your current strategy and system don’t take the above into account, your supply chain may act as a drag on your business and force your entire company to combat constant headwinds that restrict growth and margins. Start planning ahead now, and your supply chain will thank you later.