The shortcomings of shortage management
If the last few years have taught us anything, it’s that our supply chains are much more vulnerable than we thought. Here's why:
1. Supply chains lack transparency, still
When we talk about challenges in shortage management, we need to talk about the decades-old problem of global supply chains: a lack of transparency.
Only 13% of companies report full visibility of their supply chain, and 71% of companies have limited or no visibility beyond their ‘tier 2’ suppliers, according to this Deloitte survey.
Relying on a tangle of global factories to source and manufacture goods, supply chains have become the modern version of the Gordian knot. So large, complex, and interdependent that unraveling the ripple effects of material shortages seems impossible.
Related: Global technology group: “Celonis makes material shortages more transparent than ever. It helps us make better decisions and find better solutions.”
2. Supply chains are crippled by silos
This leads us straight to the next challenge: process complexity. Supply chains are complicated creatures: run by many people, in many departments, using many different systems and processes.
Consequently, material shortages cause ripple effects that aren’t always visible, but are always painfully felt. When Production needs to slow down because inventory is out of stock. When Sales can’t hit their quota because bestsellers are not on the shelf. When Customer Service gets angry calls about delivery delays and is playing catch up by express shipping orders. And just wait until Finance discovers shipping costs have gone through the roof.
Each of these departments are both totally interconnected yet totally siloed. If supply chain leaders don’t manage to tear down these walls and understand the up and downstream effects of shortages, their jobs become so much harder.
3. ‘Just in time’ makes companies vulnerable to shortages
Pre-pandemic supply chains were laser-focused on squeezing costs and keeping inventory to a minimum. But concepts of lean manufacturing, just-in-time, or just in-sequence just don’t work in times of constant disruption. We’ve seen how fast one tap can break the system – cast your mind back to the semiconductor shortage or supermarkets running out of toilet paper.
To withstand current and future disruptions, companies need to find a better way to balance costs with inventory levels.
Learn more: 8 characteristics of resilient supply chains that can give your business a competitive advantage
This means you need to rethink inventory optimization and shift from just-in-time to just-in-case, holding extra inventory for critical items. When you understand which materials are production-critical, you can proactively reallocate and replenish those before you run out of stock.
Despite huge advances in technology fields like AI, real-time data analytics, and machine learning, many companies are still trying to tackle supply shortages with the 21st century tech equivalent of pen-and-paper: ERPs and Excel sheets.
A staggering 67.4% of supply chain managers report that they are using Excel spreadsheets as their primary management tool, according to Allied Market Research. (Hands up if you‘re one of them.)
That comes with several problems.
Excel reports aren’t just notoriously error-prone — they’re outdated as soon as you‘ve added the last SKU. So how are you expecting to tackle orders at risk today if it takes you a week to gather all the data?
Your ERP, on the other hand, might provide a snapshot of your inventory, but has no way of showing the consequences of a missing material further down the line. All this leads to you working in constant firefighting mode.
Also read: Celonis' CEO Council: 8 supply chain takeaways
