7 minute read 1 Sep 2021

With supply chain visibility a top priority for supply chain executives, now is the time to prepare for the next large-scale disruption.

Female manager talking with male colleague at container port

Why better supply chain performance begins with end-to-end visibility

Authors
Regenia Sanders

EY Consulting US-Central Supply Chain and Operations Leader

Passionate about empowering women in engineering and other data-driven fields. Auburn University graduate. World traveler and adventure enthusiast.

Kevin Custis

EY Global Transportation Industry Leader

Passion – helping clients reimagine possibilities enabled by exponential capabilities that are rapidly shifting from theory to reality. Priority – time with family and long-course endurance training.

7 minute read 1 Sep 2021

With supply chain visibility a top priority for supply chain executives, now is the time to prepare for the next large-scale disruption.

In brief
  • A relentless stream of disruptive events (e.g., weather, accidents, supply constraints) has challenged the logistics industry.
  • Increasing geopolitical tensions have adversely impacted the semiconductor supply chain, which threatens the prosperity of multiple industries.
  • Supply chain resilience means adopting a programmatic approach for improving visibility and risk monitoring beyond tier-1 suppliers.

A new supply chain model is beginning to take shape. It will be driven by digital ecosystems and market networks that enable an economy built on hybrid forms of cooperation and competition. In the best-case scenario, end-to-end supply chain visibility soon becomes the norm, logistics takes a huge leap forward, and everyone reaps the rewards of more dynamic, responsive and digitized delivery networks. The days of moving products and services through linear supply chains (from raw materials to delivery) will quickly fade away to fully networked ecosystems of hundreds of suppliers, carriers and companies working toward a common goal.

In this new construct, technology enables shippers to see their inventory in real time and make rapid adjustments to unexpected market shifts. These same digital tools also allow logistics companies to be more responsive, reducing the time it takes to fulfill urgent needs and keep everything moving.

It’s all very intriguing. It’s also critical to building a global supply chain that can stand up to a world that is in a near-constant state of flux. Transport companies that can’t adjust to this reality will become commodity players, or worse, not be players at all. The disruption of COVID-19 has been a wake-up call: there is a realization that the demands being placed on an aging, inadequate supply chain infrastructure are not tenable in the long term. The global supply chain is increasingly ill-equipped for today’s world and needs to become digital and autonomous if it’s to be able to automatically identify and respond to external events.¹

This journey to a more responsive supply chain needs to begin now.

A global supply chain riddled with uncertainty

Because of the complexity of products – especially electronics – companies often have unfinished products or parts in one part of the world and the shipping containers that would be used to transport them in another. Multiple industries have been affected by the global shortage of semiconductors, a component key to so many devices used around the world every day. As the economy continues to reopen, the shortage of semiconductors has forced automakers to undertake production cuts and slow down or temporarily halt production in some cases. Value chain players are undertaking initiatives to combat the supply and demand imbalance, and considering localization and alternate sourcing of semiconductors to mitigate future risk.

The six-day closure of the Suez Canal in March due to a ship blockage was yet another recent supply chain concern, along with worries about capacity dislocation, supply/demand imbalances, infrastructure maturity, rapidly changing customer preferences for products and services, and general anxiety over what might be the next disruption. 

Two top concerns in supply chain for manufacturing are pricing pressure and inadequate service. For manufacturing companies, higher rates are just one more thing they need to worry about along with geopolitical tension and overall resiliency planning for their business. If it was just higher rates, they could simply pass the cost to customers or take advantage of all that pent-up demand and sell more product. But that takes us to the other big concern: broader, systemic supply shortages that cause lost sales and, ultimately, loss of market share.

The frustration of having a product that can’t be delivered or taking orders for a product that can’t be completed because of missing parts is intense. And some analysts believe it is holding the economy back from an even stronger recovery than is already happening.

Here’s our view of what needs to happen to overcome these obstacles, boost supply chain resiliency and welcome the future of logistics:

  • Develop a strategy for digital-led supply chain – Transportation companies in the logistics space need to recognize that if their clients start to pivot around resiliency and visibility, they need to play in that world and build competencies beyond logistics and assets. Manufacturing companies are resetting their supply chain priorities. While some are still focused on a global model, others are putting in parallel models to enable different levels of backup supply and sourcing. Whatever the case, the need for visibility and coordination is 10 times what we might have imagined it to be last year.
  • Transport companies need to invest big in software – The successful transport companies will be those that build real software capability and become leaders in optimization. It’s not going to be in your traditional IT group, but rather technology as a product. Companies will offer clients more valuable services and therefore extract more from the transportation marketplace. These companies should evaluate their customers and assess the timing by which these changes will impact their particular market.
  • Build integrated solutions with ecosystem partners – These solutions will increasingly be sector-honed and sold on a different basis to different buyers. They will expand your value proposition and provide leverage against future market changes that are sure to come.
  • Get ready for the next big disruption – It’s never too late to start planning for the unexpected. Talk about scenarios that could occur, from those that are most likely to happen to ones that are more farfetched. Encourage open discussion and address potential weak spots. This is a different discussion from routine stress tests. Those are necessary as well, but an effort should be made to talk about more large-scale disruptions so that in a worst-case scenario, there is at least the framework of a response plan in place for supply chain operating procedures.
  • Stress test your supply chain – Business as usual will never be usual and is likely to always be uncertain. There are just too many variables that can change or cause change to expect a high degree of predictability. You’re not going to be able to solve market conditions, but you can respond to them better by applying risk mitigation strategies. Do stress tests to uncover the gaps that could occur in your supply chain so you know what problems you need to solve. Invest in creating added supply chain resilience and identify and reduce key single points of failure (e.g., supply concentration). Look at alternative sources of supply that can be activated, perhaps through investment in excess capacity or additional safety stock. Consider postponement strategies that may be sensible for your business.
  • Build transparency around demand forecasts – Work with shippers to better understand business patterns and behaviors. Utilize platforms that allow for collaboration and sharing of supply chain information between parties so that knowledge can be shared between client and shipper. Identify tools that lead to more informed decisions around planning capacity and demand ebbs and flows to enable shippers and their clients to do a better job helping each other.
  • Enable supply chain visibility and risk monitoring – Using digital process mining and digital twin solutions can boost your supply chain resilience in an eventual post-COVID-19 world.² Tools such as supply chain control towers, digital twin and EY Supply Chain Extended Visibility can make your supply chain more resilient in the face of unexpected change, providing advanced visibility and early risk detection based on a manufacturer’s supplier topology, a broad variety of data streams, and artificial intelligence for pattern recognition. Another technology, digital process mining (DPM), allows you to map your business processes in extensive detail, giving you greater visibility into your supply chain functions (often with real-time information on the flow of cash and materials) and a deeper understanding of its interdependencies. A good DPM toolkit can enable you to strengthen areas where you see vulnerabilities and to make more informed decisions about how to respond when disruptions occur.
  • Stay on top of market trends – The trade lanes that have historically been most active are going to shift, if they haven’t already. Even if container rates settle down, there are longer-term changes ahead in terms of what prices are relative to another. Companies are looking at the value of truly global networks, whether they are owned or ecosystem partnered, that can provide more value to end users due to certainty and resiliency. Businesses will need to keep an eye out for new patterns that emerge and how those might impact their own approach to supply chain function.
  • Drive the imperative to reduce supply chain cost – Look for ways to optimize your infrastructure and organization, streamline or simplify current department functions and drive cost savings through operational efficiency. Evaluate the up-front expense of upgrading and replacing aging transportation components such as containers and the vehicles used to move them against the long-term benefits these investments would provide – and the cost of maintaining the status quo.

Jim Morton, Executive Director, Consulting, Ernst & Young LLP, also contributed to this article. 

Summary

Now is the time to take the first steps toward a digitized supply chain that gives you end-to-end visibility. Transform your supply chain operating model from rigid and linear to an agile, networked ecosystem in which all parties work collectively. Companies that have already started down this path will be much better prepared to deal with disruption. To those that haven’t started, this is a giant wake-up call to get moving.

About this article

Authors
Regenia Sanders

EY Consulting US-Central Supply Chain and Operations Leader

Passionate about empowering women in engineering and other data-driven fields. Auburn University graduate. World traveler and adventure enthusiast.

Kevin Custis

EY Global Transportation Industry Leader

Passion – helping clients reimagine possibilities enabled by exponential capabilities that are rapidly shifting from theory to reality. Priority – time with family and long-course endurance training.

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