Four Pain Points — and Remedies — for Supply Chains Right Now

Numerous geopolitical factors, from conflict in Ukraine to the pandemic-related lockdown in China, have placed unprecedented pressure on the globalized trade system. The result is shortages in goods, labor and storage capacity.

According to Gartner, as of 2021, 68% of supply chain executives were constantly responding to high-impact disruptions over previous last three years. In other words, there was no time to recover from one incident to the next.

Will things get better anytime soon? We’re far enough into 2022 to know that this year won’t see a return to normal. But it could be a turning point.

What’s changing is that businesses are investing in adding capacity and adopting new technology to drive efficiency and reduce costs in supply chain planning. At the same time, they’re taking a new attitude toward disruption. They’re seeing it as an opportunity to improve operations and achieve competitive advantage.

The need to mitigate the impact of major disruptions has also highlighted the cumulative effect of relatively minor events on business efficiency. While not on the scale of a Suez Canal blockage or extreme weather, these smaller disruptions regularly crop up to spoil an otherwise perfect day. Supply chain managers draw on well-rehearsed tactics to smooth out the bumps, but at what cost? 

The adoption of tactical “firefighting” rather than a strategic approach should sound alarm bells, not least because of the missed opportunity to revolutionize supply chain planning. True operational excellence means a resilient supply chain that outperforms its peers, gets better year over year and delivers value.

Four pain points illustrate the plight of many supply chains today:

• Lack of alignment. Organizational alignment issues have grown, with a lack of understanding of supply chain constraints. The gaps between operational and commercial teams, operations and finance, manufacturing, and procurement are a barrier to improving performance. 
• Talent. The talent gap within consumer products companies has widened. Companies are typically 20% to 30% short in human talent resources in supply chain planning.
• Complexity. It has increased along with inventory, but few companies have managed to eliminate “bad” complexity and build processes that manage a more complex product flow.
• Decline in innovation. The focus on IT standardization has driven a decline in process innovation, and a reluctance to take advantage of technological developments.

Four pain points call for four remedies. Here’s how future winners are getting creative with supply chain planning.

• Rethinking their thinking. This is a catchy way of saying that decision-making needs to evolve based on forecasting, drawing on “outside-in” data. In other words, pay attention to your customers’ behaviors and problems, rather than relying entirely on internal resources and competence.
• Giving planners some love. Supply chain planners are part of the day-to-day solution, but they need to be part of the strategic solution as well, and become deeply involved in driving success. Develop and invest in their talent and skills, and reduce manual processes. Upgrade to technology such as artificial intelligence, machine learning and cloud-based deployment.
• Asking: Is it core to growth? New-product introductions add complexity, so ask whether they’re essential to margin growth. Their effect on the supply chain is a crucial factor in determining the answer to this question. For example, supply chain planners could ask if the stock should be kept as components (more flexibility) or finished items (shorter lead time).
• Being an innovator. Taking a standardized, IT-based approach might seem like savvy risk management, but it introduces another risk: missed opportunities. Consider appropriate data visibility for different roles, and grasp the opportunity for automation-based analytics to generate meaningful “what-if” scenarios. In short, embrace technological innovation.

Regardless of the business leader driving the change, the evolution of supply chain planning calls for a collaborative approach across the organization, and an integrated approach between finance and operations. As Simon Bailey, senior director analyst at Gartner says: “In 2022 and beyond, chief supply chain officers must update their vision to account for ongoing and unimagined disruption to global networks, operating models and stakeholder demands.”

Truly integrated planning will send positive ripples throughout the organization, and tear companies away from traditional thinking. That’s the first step toward supply chain excellence — and better performance in key performance indicators, margins and profitability. 

Written by: James Paterson, vice president and general manager, CCH Tagetik North America, at Wolters Kluwer, for Supply Chain Brain.