The last three years have been some of the most disruptive ever for supply chains.
Market volatility caused by the pandemic, the subsequent economic downturn, labor shortages, severe weather events, and global supply shortages are just some of the factors that have converged to cause enormous stress on all areas of the supply chain.
As underlying structural fragilities have been exposed, many enterprises have been caught flat-footed; more have been forced to pivot sharply as they navigate new challenges.
Executives now see that their supply chain can be one of the biggest sources of vulnerability for their entire enterprise. Organizations that will emerge strongest are those willing to see current emergency conditions as their opportunity to overhaul their entire operating model.
KPMG believes that organizations looking to modernize their supply chain to meet today’s challenges will have three things front of mind…
Visibility and execution
The disruptions of recent times prove the need for end-to-end visibility and collaboration across the entire value chain.
In these times of significant demand/supply imbalances, a better understanding of future demand is critical. Equally crucial are foresight of the factors that could affect demand and integrating supply partners into your forecasting process.
The principles of Collaborative Planning and Forecasting don’t change, but there is a need to go further—ecosystems of strategic partners (not just your suppliers but also third-party providers) will be vital to meet demand and ensure continuity of supply.
Technology can demand huge capital investment and a need to constantly be on top of the latest updates. Integrating a third-party strategic business partner enables companies to adopt newer technologies and drive innovation without any high capital requirements.
Balancing supply and demand are typically informed through the sales and operations planning process, but with increases in e-commerce adding to existing labor pressures, it is vital that planning and execution work in unison.
Workforce of the future
Changes in labor requirements have resulted in organizations needing to adapt:
- For white-collar workers, the shift to working from home has altered the workforce dynamic—the need for flexibility and a desire for more work-life balance has created an increase in wage costs. There is also now a vacuum for retaining an experienced talent pool, as competition for these workers offer increased flexibility, higher wages, and other incentives.
- The dynamics for blue collar workers have also changed. Labor shortages and increased demand have driven pay rates through the roof in certain sectors, with wages for recently certified drivers increasing by 40% or more.1
The accelerated adoption of digital transformation initiatives (e.g., robotics in warehouse, AI to perform contract compliance, predictive analytics) to drive productivity and efficiency during the pandemic is a new ‘wrinkle’ on securing labor. Workforce skillset requirements now demand savviness in such technologies, with a resulting need for an evolving talent pool mix.
Organizations that invest heavily in their future workforce by providing the flexibility and incentives employees desire are likely to reap the benefits.
Just-in-time versus just-in-case balance
In recent times, companies operated with a lean mindset, reducing their working capital and inventory levels to drive cost efficiencies. The pandemic exposed the inherent weakness in that thinking:
- Tight or limited availability of raw materials has hugely affected supply chains. Tier 1 and Tier2 suppliers have been challenged to provide the required level of product to their customer base.
- Transportation capacity constraints, backlog at the ports, consolidation of freight providers, and availability of drivers impact all participants in an organization’s supply chain.
The pendulum has now shifted to considering building additional inventories to offset any potential supply chain disruptions—a move to a just-in-case methodology.
This move is intended to enable the continued servicing of end customers in times of future shock. Just-in-time is not completely out the window, but there needs to be a balance between just-in-time and just-in-case.
To execute on this strategy, supply chain executives are evaluating new measures such as:
- Applying segmentation strategy around customer evaluation
- SKU profitability assessments
- Single/alternate sourcing practices
- Deep reviews and opportunities of channels served
- Digital twin modelling
- Rethinking their network strategy and design
- Implementation of deep analytics
- Integrating agility and flexibility into their operating models.
COVID-19 has exposed inherent weaknesses and demonstrated that supply chains can be one the biggest sources of vulnerability for enterprises.
For those who see the opportunity, however, it has uncovered the fact that implementing a modern, collaborative supply chain may just be one of the biggest value levers for their business.
Strong enterprise COOs, who can model their supply chain operations to effectively meet the requirements of today and tomorrow, will see their organizations survive, and thrive, whatever the future holds.
- Source: Wall Street Journal, “Trucking Companies Boost Pay in Hunt for Drivers as Demand Surges” (April 14, 2021)