Ensuring best practice supply chain preparation in an uncertain climate

4 mins read

Supply chain scenario planning has been under the spotlight since Covid-19-related restrictions and lockdowns created disruption around the globe, and as Covid restrictions have been easing that spotlight has not.

The need to remain agile and plan effectively is even more critical in 2022 as one of the largest global exporters, China, continues its attempts to ensure a zero-Covid policy, resulting in manufacturing shutdowns and logistical delays (driven by factors including reduced capacity and labour availability).

The Russian invasion of Ukraine has created further disruptions for organisations as EU and US sanctions come into force; rising energy prices causing more concern for manufacturer and consumer alike, on top of general commodity availability.

Finally, the threat of global recession is likely to have a significant impact on the supply chain, lowering demand and negatively impacting profitability

The electronics sector typically faces unique challenges that are being worsened by these factors. The widespread shortage of semiconductors and chips has put a hold on manufacture of smartphones, cameras and computers. Many of the components in high tech devices are created in Asia, and production can be slowed if a plant shuts down or works at a significantly reduced capacity. If a cargo ship is delayed, this can delay transportation of the product to the end destination. While there isn’t one quick fix for these issues, planners can better prepare by utilising robust, real-time data to build scenarios across the short, medium and long-term. All this before we even consider peak season, such as national holidays and other associated retail drivers of demand volatility.

Growing disruption

While the pandemic highlighted supply chain challenges, it’s over the past few decades where disruption has been gradually escalating. As businesses become much more reliant on a greater scope of global suppliers and manufacturers, scenario-focused supply chain planning has come to the fore as the best (or only) means of having full transparency over what is happening outside of an organisation’s own four walls. The pandemic only catalysed this trend away from silos and towards the need to leverage concurrent scenario planning across the supply chain.

The continued lack of skilled workers in the talent pool has added further problems to the worsening economic climate. Research has discovered that more than 12 million workers lack essential digital skills in the UK, stifling growth in the tech sector. But talent shortages extend across the whole supply chain. Research suggests that the supply chain talent shortage is expected to leave 2.4 million positions unfilled between 2018 and 2028, causing a potential economic impact of $2.5 trillion. Everybody in the industry is in it together, so the need for more advanced scenario planning solutions to provide a single source of truth for more accurate evaluations across the supply chain is more pressing than ever. 

Gaining clarity

As organisations require instant cost savings and resiliency in the long term to prepare for future events, scenario planning is growing in relevance. There are two approaches when it comes to scenario planning: known and expected challenges and completely unknown disruptions.

Specific KPIs and potential options can bring effective scenarios to fruition, helping organisations tackle the expected challenges. Combining these options with dashboards and scorecards that clearly articulate the expected outcomes of each choice can enhance decision-making, giving businesses that all-important pivot ability and a clear understanding of the impact of successive changes.

It’s a trickier task for the disruptions that can’t be seen lurking round the corner. With so many tweaks and variables needing to be considered, supply chain planners need the ability to quickly eliminate those choices that are not going to meet the KPIs. The faster scenarios can be run, the more options can be attempted, piece-by-piece, to give businesses the best chance of finding a solution that works. 

Quickening the pace

Rapid pace to react is a needed ability in the face of global supply chain disruptions. If a disruption continues to affect the supply chain, organisations are more likely to take a hit on delivery speeds and overall revenue figures. For supply chain planners, the pressure is on to quickly get ahead of problems to avoid ripple effects across the rest of the organisation.

It was previously the case that optimisation was the priority in supply chain design, including the requirement to reduce costs and uphold efficiency. The race to chase down the perfect plan, or flawless 100% forecast accuracy, disadvantaged many practitioners as their singular focus on optimisation led to them failing to build enough agility and resilience into their supply chain. It would take hours or even days to calculate a plan, causing them to completely miss the boat when fast-moving disruptions such as Covid occurred.

However, this narrative is now evolving, and organisations in the electronics sector and beyond are recognising the need to improve agility, speed and efficiency in multi-faceted global supply chains. The sector is now turning to technology to ensure the right balance is struck between agility and optimisation – and advanced analytic techniques are offering a compelling way forward.  

Leveraging data

Taking supply chain scenario planning to the next level is achieved with effective utilisation of data.

Crucially, it gives organisations the end-to-end visibility of operations associated with third-party suppliers, partners and the trends associated with customers. Data insights are crucial in giving planners the visibility and transparency needed to run effective scenarios.

Transparent data is only the first step to gaining full value. The next step is adding a layer of quality to enable improved supply chain decisions. Without consistent, correct, and up-to-date data, the outcome of a scenario will be fundamentally wrong. Therefore, an effective scenario must be founded on a solid understanding of exposure, inventory, and the true nature of demand – whether it is driven by panic or longer-term trends, for example.

Artificial intelligence (AI) and machine learning (ML) are working together to power up data-driven scenario planning. Growth in the use of these technologies is continuing apace, with McKinsey arguing that AI and machine learning hold the potential to dramatically improve supply chain performance for consumer-packaged goods (CPG) companies. With talent shortages and the volume of data in such systems growing exponentially, these solutions provide insights that humans may not have had the ability or time to discover themselves. AI can efficiently process data and pass on key insights to human supply chain planners, allowing them to review the insights and formulate the strongest possible “what-if” scenarios. 

Planning for the future

Concerningly for the electronics sector, knowing when the next significant global supply chain disruption will take place is shrouded in mystery. One aspect they can gain control over is the attainment of agility and resilience thanks to data-driven, technology-enabled scenario planning. In fact, over the course of the pandemic, the organisations that utilised supply chain management and operation planning software performed 2.5 times better than the industry average.

As AI and ML become more widely used, businesses in the electronics sector will be able to tap into opportunities to better plan for potential scenarios and enhance their supply chains, leaving them in a strong position to cope with potential instability later down the line.

Author details: Jim Bralsford, Director Industry & Solutions Marketing at Kinaxis