Five steps to build tomorrow’s supply chain
1. Collaborate with customers.
While forecasting technology and analytics are crucial to successful customer service, communicating and partnering with customers “beyond data” is one of the best ways to understand their requirements and needs. It is crucial to understand customers’ service priorities. Additionally, it is important to understand the extent to which changes in customer demand mix and channel are transitory or a “paradigm shift” going forward. These insights and other intelligence should then be incorporated into the integrated business planning (IBP), capacity planning and capital planning processes as well as the product segmentation model.
2. Leverage data and technology to respond and predict.
Develop and implement a bespoke analytics infrastructure where appropriate to support “war room” development and execution of the product segmentation model and the prioritized procurement, production and service plans — integrating both quantitative and qualitative stakeholder and customer input. Leverage information from customers to “re-baseline” historical data in segmentation and other analyses to reflect known and forecasted demand requirements. In the longer term, a strong data management and forecasting platform is essential to get ahead of demand shocks. Being able to sense changes in demand patterns is crucial, particularly if supply chains are “long” and dependent on many upstream processes. Invest in “best-of-breed” analytical and planning systems with robust scenario-modeling capabilities to respond to supply chain crises predictively and dynamically.
3. Embrace additional views of performance measurement and tie to the operating model.
Move beyond more traditional performance metrics such as piece price and cost per unit and focus on minimizing constraints and increasing throughput of high-priority items. Companies should leverage product segmentation to determine where short-term input price and manufacturing cost increases to reduce constraints and improve customer service are appropriate; in some cases, customer prices can be increased to enhance incremental value. These price increases are already happening among some high-demand consumer products, as well as in autos, energy and many other sectors. These decisions should be incorporated into the existing sales and operations planning IBP processes.
4. Secure resources for core products while enabling an agile delivery model.
Evaluate short-term opportunities to secure access to capacity, raw materials and labor pools. Critical raw materials and components should be procured from alternative supply sources and/or at lower lead times (and at a higher piece price), if necessary. This may cause margin and working capital performance erosion in the short term but is necessary to limit supply chain disruption. Additionally, companies may need to secure additional transportation and warehouse capacity, including expanding operations in off hours. In the longer term, procurement and planning strategies should help drive a more resilient and agile supply chain through strategic inventory buffers, multi-sourcing and “upside” capacity arrangements; expanding strategic contract manufacturing and third-party logistics (3PL) relationships can enable companies to adjust capacity and throughput in response to changes in business requirements.
5. Prioritize training and development.
Labor constraints are a major factor in the supply chain crisis. In the near term, companies should expand training within the existing labor pool to reflect product prioritization. In the longer term, training should focus on flexibility through cross-training in order to be most responsive to customers. Increasing incentives for cross-training and skills development can help motivate employees to train in new capabilities. Additionally, managed services can provide staffing flexibility.