Answering Global Volatility with IT Solutions to Support Supply Chain Agility
Today’s global economic volatility is putting increased pressure on supply chain managers. While worldwide turmoil is not new, the ability to manage it has now become an expectation — one companies must master to remain competitive. This requires purchasing agents to be alert, well-informed, and able to pivot to new suppliers and delivery routes with confidence.
Politically-charged U.S.-China tariff negotiations and strained relationships over the U.S.-Mexico-Canada Agreement (USMCA) are among the complex issues currently impacting supply chain health. Increasing costs of raw materials, uncertainty over interest rates, and fluctuating projections for consumer demand in 2019 add to the challenges supply chain managers face. Fortunately, technology can help provide the insights needed to make smart decisions and take proactive stances. In fact, agility can be a positive differentiator, as competitors that are less tech-savvy flail in indecision.
Defining Supply Chain Challenges
Manufacturers and retail organizations are more accustomed to addressing competitive volatility than political turmoil. Supplier relationships are a cornerstone of go-to-market strategies and have, traditionally, been slow to change. Manufacturers, from makers of industrial products, consumer goods or fashion, rely on their partners and component suppliers, as they play key roles in product innovation and reliable delivery. That all changes when U.S. companies must re-calculate overhead, factoring in tariffs, shipment costs and reliability.
It is complicated. Two-thirds of economists surveyed in September 2018 said that trade or tariffs were the biggest risks to their economic growth forecasts in the next 12 months. In the retail industry, supplier-related risk grows exponentially, as networks expand further into emerging markets or outside of their “comfort zones.” Some retailers are adopting a strategy of “China + 1” to begin movement outside of the country. Greater risk comes hand-in-hand with changes. Managers must continually consider how to mitigate supplier-related risk and the cost of meeting customer expectations.
Dun & Bradstreet (D&B) tracks Supplier Criticality as part of its research on understanding the density of the buyer-supplier relationship, especially when a supplier delivers an essential component or service. D&B describes Supplier Criticality as “the proportion of buyer-supplier relationships where the supplier is considered critical or key by the buyer company.” This indicates a company’s perceived degree of dependency on its suppliers. The higher the rate, the higher dependency. In 2018, Supplier Criticality in retail reached an alarming high of 75.2 percent, indicating significant risk. The viability and health of a critical supplier has a direct impact on the retailer’s brand, revenue and customer experience.
Global turmoil is not going to end. Volatility has been a reality since the beginning of international trade – whether caused by geo-political friction, weather extremes, mega-trends, or nationalistic policies. No manufacturer or retail organization is exempt from feeling the impact of world commerce, including recent tariffs and trade agreements. But those are only the most talked-about factors putting supply chain strategies in the spotlight. Increased competition from emerging nations, expansion of the global middle class and heightened mindfulness about working conditions and social responsibility also turn supply chain planning into a strategic role. To optimize opportunities, managers need modern IT tools that provide advanced levels of insight.
Technology Creates Opportunities
Fortunately, companies have many options and tools they can turn to as they strive to up-level their supply chain management strategies. Supply chain planning and execution technology have made huge strides in the last decade, as software providers have applied cloud computing, big data, business intelligence, machine learning, predictive analytics and artificial intelligence to solutions.
Outdated legacy solutions tend to be built on enterprise-centric systems, constructed in a hub-and-spoke model. But modern supply chains are not linear; they are hyperconnected networks of partners that span the globe. In a world of increasing speed and rapid change, the old linear model results in latency – both in data and in execution. In the time that it takes for data to pass along from one system to the next and generate an output, it is likely outdated.
Meeting challenges starts with a unified system that underpins the entire network, providing a digital connection for collaboration and visibility in real time. When all the parties in a supply chain are plugged in, the information that was once locked away and invisible to the buyer or customer suddenly is visible. Updates from the outer nodes of the network are made in the system – live – and instantly reflected in this “digital twin” depiction of reality.
Dealing with the impact of tariffs – and any form of supply chain risk – requires network-like connectivity that engages all parties including carriers, 3PLs, banks and suppliers. In this environment, data flows from partners into the network, where it is harnessed for intelligent insights. AI and machine learning can identify patterns and spot potential problems before they happen. Opportunities to maximize inventory while meeting customer demands can be uncovered through modeling, simulations and predictive analytics.
Supply chains are also empowered with data-driven recommendations for next steps to take in supply chain execution. The conversation moves away from, “How should we react and respond to this tariff or port strike or hurricane?” to “What opportunities can we uncover to improve performance and productivity today and in the future?”
Time For Action
The current emphasis on supply chain performance is not going to go away once the back-and-forth sparring of tariffs and retributions have been resolved. Supply chain management will continue to play an important role in obtaining raw resources in a timely, efficient manner. A non-interrupted flow of materials is a necessity to meet customer expectations and remain competitive. Companies would benefit from investing in modern solutions, fostering new strategies, and stepping up their supply chain planning and management capabilities. Agility is the goal. Urgency is the driving force. Software provides the answers.