It certainly feels like the array of challenges and disruptions we’re currently seeing at the moment, both in duration and scale, are genuinely unprecedented. And while I never expected a return to the ‘old normal’, the shift in what’s important and relevant today is even more significant then I’d ever anticipated.
Where in previous years supply chain professionals debated the benefits and conflicts between lean and agile supply chains, today’s dilemma centres around the holy trinity of achieving robust and resilient supply chains whilst simultaneously striving for efficiency. But can all three goals be achieved at once?
Defining these terms, before approaching them from a supply chain perspective, seemed like a logical place to start.
- Robust: strong and healthy; vigorous
- Resilient: able to withstand or recover quickly from difficult conditions
- Efficient: achieving maximum productivity with minimum wasted effort or expense
- I think the best description I’ve heard regarding resilience and robustness in the supply chain is the idea that you can build solutions that bend but do not break. In my opinion, this can be achieved via:
- Forewarning: Business continuity planning and “what if” scenarios need to become part of our day-to-day – not confined to occasional war game planning. Ongoing disruption in the supply chain IS our new normal. So how are we going to address and mitigate this? If you have an urgent PO and no space, what’s today’s plan?
- Red box management: Getting rid of the clutter and focusing on the issues. Green boxes will look after themselves. Always focus on the challenges in need of your time and effort to resolve
- Rapid response: This always reminds me of the Wal Mart philosophy of never letting the sun set on a challenge. If we delay a response, we either miss the opportunity to fix the challenge or we find our focus is snatched away by another. I’m an elite level Mountain Bike coach (terrible rider) and my mantra is that a bad strategy well executed is better than changing strategy in the face of an obstacle. So, make a quick decision and work with what you have.
- Practical decision making: Not all POs are of equal importance. Review these on a regular basis and prioritise the urgent ones.
- Reviewing forecasts: As we are seeing now, many companies have failed to review their forecasts regularly enough and are now holding way too much inventory.
- Real time market intelligence: Real-time market intelligence is really important (no s**t!?). We are seeing disruptions to port and airport activities from China to Lebanon, Europe to North America, and stretching across the water to Australia and New Zealand. As supply chain professionals we need to be able to inform management of commercial challenges, reliably and accurately. Delivering anecdotal insights from the web, simply won’t cut it. Businesses need factual information for decision making, in black and white. A case in point here is the image on LinkedIn of congestion at the ports of Shanghai. It showed every object in the Ocean, including navigational markers, fishing boats etc. The reality was not fantastic, but it was not as bad as some senior executives were led to believe, thanks to poor quality, media-hyped intel.
So, if that’s one side of the equation. How about the efficiency side? To me this really relates to cost versus value generation. Some of the key elements of this are:
- Freight: Ongoing freight rate volatility is going to be with us for some time yet. But playing the spot market and riding the wave down isn’t necessarily the right or only option. An approach has to be calibrated against the risks you are willing to take. There are still going to be space and equipment issues and carriers are definitely going to prefer to honour contracts. I would suggest a mix of spot and contract rates, with the more price sensitive cargoes being moved to the spot rate market.
The other part of the freight component that is getting increased focus is detention and demurrage. I once heard this likened to piling money on a table and burning it. But today’s reality is that there are significant issues with container yards being full. Add in limits to warehousing space and trucking capacity and these charges can quickly spiral out of control, meaning they need to be managed as a priority.
- Inventory strategy: Disruptions in the supply chain have resulted in many companies reverting from Just-in-Time, to Just-in-Case inventory strategies. This is probably OK for products with high margins. But for those with low margins it can be a disaster. This is also where forecasting becomes vitally important. The lower the margin, the more often you need to look at your forecast to assess how inventory is flowing down the supply chain to the warehouse. What is the impact if a container is delayed? Is there an alternative supplier who can fill the gap?
So can a supply chain be robust, resilient AND efficient?
I believe it can.
A sage is famed for their wisdom and, for me, the wise experts out there will be focusing on real-time information on where freight is, the availability of equipment and other supply chain disruptors such as Covid. They’ll be micro-managing POs and reviewing forecasts more often than in the past. And appraising forecasts in line with well-defined inventory strategies.
Here at Ligentia we are doing this with a number of customers. It’s been a learning experience but by closely working together we’ve been able to deliver resilient supply chains with both the flex and the durability to meet our customers’ cost parameters. Sometimes this requires difficult decision making, but if you have the facts, and options, it can be achieved.