The world’s shortest horror story for people working on supply chains?
The party poopers of logistics.
Raising their ugly head when car makers idle their plants because computer chips are bottled up at ports. When a weather hazard rains on your delivery parade. Or when COVID made toilet paper a rare commodity.
But while raw material headwinds have slowed down, your company will be busy managing material scarcity for the foreseeable future.
In fact, McKinsey analysts calculated that “shocks that disrupt supply chains for a month or more — including natural disasters, cyberattacks, and pandemics — now occur every 3.7 years on average.”
The silver lining on the horizon? Material shortages aren’t preventable, but their fallouts are. Here’s an overview of the challenges in shortage management we’ll be likely facing in 2023 and beyond— and how to respond to them.
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:
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.
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.
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.
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.
Supply chain problems haven’t fundamentally changed — they’ve just been exacerbated by the pandemic. The good news is that the global supply chain pressure index, which measures supply chain stressors, indicates that the worst is behind us.
But with simmering geopolitical conflicts and the pace of disruptions likely picking up over the coming years, so is the need for greater visibility and data-driven decision-making to better cope with shortages.
They’re using process mining to get greater visibility over their supply chains, testing out scenario planning and simulation to prepare for disruptions, and experimenting with process-intelligent AI and automation to close the loop from insights to action. Intrigued to go deeper? See what it takes to apply the lessons of the supply chain crisis and manage material shortages more effectively.