Create predictability through supply chain investment, risk mitigation and proper data use to face the unknown
By Spencer Shute, Senior Consultant, Proxima – a leading procurement and supply chain consulting firm
There is no end in sight to the pressures businesses have faced throughout the pandemic. The culmination of higher wages, price hikes, shortages of materials, and supply chain disruptions continue to create both challenges and opportunities.
On average, 70% of a company’s revenues are spent with external suppliers. That means many business outcomes and the associated cost, risk and innovation depend upon third parties. Finding the right partners to work with, managing those relationships, and optimizing supply chains are crucial.
Moving into 2022, businesses will need to continue to invest in their supply chains, effectively mitigate risk and react quickly with data. Below, we dive into these topics and how professionals can drive organizational change while delivering value to the bottom line.
The supply system is not optimized; but your organization’s supply chain can be
Through the pandemic, the weaknesses that underpin supply chains have been exposed. The ripple effect of the lockdowns and disruptions across the world means that goods, and the transportation used to move those goods, are not where they should be.
In the coming years, we will witness fundamental changes to the traditional low-cost, price-led approach many organizations have taken when it comes to choosing their suppliers. Currently, we are pushing more and more into a system that is not working. With just in time supply chains there is minimal room for delays should a factory close for a day or two, anything more than that causes problems as we have seen.
A single disruption in a supply chain in one place, when everything is lean and complex, affects most of the direct chain, but also that impact spreads across other supply chains. The big unknowns are how additional shocks will impact a system that has already been hit time after time. New variants, extreme weather and/or political intervention are all likely in some form or another over the next 12 months and businesses will be planning as such.
When faced with a challenge or shortage, the first step is to acknowledge it and then to work around the constraint. While many will look to first reduce the amount of that product or to reduce dependency on it, it will take innovation, creativity and supplier relationships to solve these challenges. For example, the packaging industry is encouraging end-user collaboration to create circular models for recycling. Visibility to your suppliers will help you get ahead of these issues. In the following sections, we take a closer look at how that can be done.
Effective risk management
Through the disruptions, there is now a growing appreciation for how businesses manage supply chain risks. Moving forward, visibility into the supply chain is an incredibly important step in risk management.
For effective risk management, businesses need to understand every node in their supply chain and what interconnects each so that if there is a break, there is a solution. A good place to start is with suppliers, contracts and what you are buying. Understanding your internal positions will put you in a better place to make decisions when the unthinkable does happen.
While it is impossible to eliminate all risks, visibility will allow companies to react quicker when the unknown happens. Businesses are adapting their strategies and investing in new processes and technology to aid this transition. The decisions being made now will determine a company’s agility and therefore define their future success.
Data led decisions will enable quick solutions to extreme situations.
Last year, there was quite a lot of stock and not a lot of consumer confidence. This year, there is not a lot of stock and more consumer confidence. These are two out-of-the-ordinary extremes to plan around, and many businesses took the time to invest in just that. In fact, Proxima’s Finance Leaders Outlook report at the beginning of 2021 found that 74% of US finance leaders indicated that IT investment had risen significantly as a budget priority as a result of the pandemic.
Many organizations have invested in IT in a high-tech way. Those who are connected to their customers, supply chains and data have been able to spot issues and react quickly. Comparing sector by sector those who were able to make quick, data led decisions have fared better over the last 12 months, than those who thought and waited to assemble 100% of harder to find data.
Well-implemented digital transformation can completely change any business and deliver real competitive advantage. However, business leaders need to ensure that they have solid foundations in place on which to deliver truly impactful change.
2022 could just be the year of predictability
Several people gauge supply chain challenges through the amount of shortages there are. Those in the industry actually prefer to keep a close watch on the predictability within the supply chain as that dictates additional costs and challenges. That could look like labor struggles or accelerated demand. With the increased focus on supply chains, businesses will now focus on collaboration resiliency than ever before.