Want Supply Chain Resilience? Ask Your Data.
- By Lachlan Colquhoun
- May 16, 2022
Supply chain disruption is not simply about the smooth movement of goods into the production process and then through distribution centers to the consumer.
There are also curveballs from consumer behavior.
Consider the demand for chocolate during the pandemic lockdowns. Unsurprisingly, demand for chocolate increased considerably during the lockdowns as people stuck at home sought comfort food.
But instead of purchasing smaller blocks and bars, demand spiked for the biggest-sized packs of chocolate as people stocked up.
For supply chains that produced specific quantities of a diversity of package sizes, the result was disruption from the factory to the store.
“If you are a manufacturer, you forecast how much of every product you’re going to make. Then the demand totally changed,” says Kuntha Chelvanathan, APAC supply chain and procurement transformation leader at IBM Consulting.
“And these spikes in unusual demand happen in different locations, at different times, because different cities went into lockdowns at different times, so this phenomenon was doubly unpredictable.”
The response from supply chain planners, says Chelvanathan, has been to gain a “better pulse on demand.” The enabler for that is a broader range of data points for forecasting models.
“From a supply chain planning perspective, we are seeing companies use more than their internal data, and use artificial intelligence, advanced analytics, and machine learning — the exponential technologies,” she says.
Working with an unclear picture
Another issue is visibility. Many companies lacked a clear picture of the capabilities of their suppliers and were also basing their planning primarily on tier-one suppliers closest to them.
One lesson from the pandemic disruptions was that suppliers and external factors outside of this ecosystem had a potentially significant impact on supply chains, requiring a broader understanding of supplier networks and relationships.
“The visibility of these networks was found to be low in many cases,” says Chelvanathan.
“These companies got hit because they didn’t realize how embedded they were with these suppliers they thought were further away from them and not as important.
“So to build this visibility, you need data and technology.”
In finding a solution, organizations leverage providers delivering data products and analytics as a service.
These providers capture millions of data points that can then be mapped against more expansive supplier lists to build better predictive models.
IBM has a product called a “supply chain control tower,” which creates visibility by aggregating and analyzing third-party data feeds.
Engaging with these products, says Chelvanathan, was occurring pre-pandemic, but “the shock has accelerated the adoption.”
“It is inevitable because if companies don’t do it, they see that they have a real risk of going out of business,” she says.
Another change, driven by circumstances and enabled by technology, has been around the duration of planning.
Typically, supply chain planning would be done every month, but the move is to more dynamic planning.
“You have all this extra data, you’ve got impacts, and say, ‘ok, I have to change my plan because right now I can’t execute what I planned last month,’” says Chelvanathan.
This also requires a cultural adjustment and getting buy-in from people who have done things in the same way for decades.
Re-evaluating supply chain risks
Sourcing is another process that has come under scrutiny during the pandemic and has undergone significant change.
Organizations have learned, often from hard experience, that their reliance on single suppliers — which may have delivered advantages of scale in the past — can be a significant risk to continuity.
This has often led to higher costs and input prices and has impacted inflationary pressures around the world.
Previous ideas around “just in time” supply chain management are also being re-evaluated, as the approach's risks have been exposed.
Inventories, previously considered a burden and the product of poor planning, have saved more than one organization whose production capacity had been impacted by the disruption.
“There is a balance, and that is being re-evaluated,” says Chelvanathan.
“If you go too extreme and have inventory everywhere, that is cost, but there is a risk in not having enough inventory. It also needs to be managed so that stockpiles might be better kept in different warehouses close to other logistics.”
Going beyond buzzwords
The two buzzwords today in supply chain are resilience and sustainability, and in achieving this, data management is critical.
The insights data can make supply chains more robust, adaptable, and dynamic.
Shorter supply chains are often less risky, and they are often more sustainable.
The carbon footprint of shipping components and products through the supply chain over long distances is coming under fresh scrutiny in the era of ESG investing.
“I think so many things around the supply chain have changed forever, and that COVID is more than a one-off shock,” says Chelvanathan.
“Because as we have seen since there are more disruptions. Companies were previously very global, but that meant they had dependencies everywhere.
“People are thinking about how far the product has to go now and how many points of failure are there before it reaches the end consumer.”
There is no one correct answer to these questions, says Chelvanathan, but considering these issues is driving a diversification strategy in supply chains. While it might cost more, such a strategy might be less likely to fail at critical moments.
Lachlan Colquhoun is the Australia and New Zealand correspondent for CDOTrends and the NextGenConnectivity editor. He remains fascinated with how businesses reinvent themselves through digital technology to solve existing issues and change their entire business models. You can reach him at [email protected].
Image credit: iStockphoto/NanoStockk