Supply chain forgiveness - short shelf life
As a profession that is built around ensuring reliability of supply and predictable levels of cost, we enter the holiday season with many companies finding themselves with constrained supply, increased lead times and costs significantly over plan.
While speaking at the National Manufacturing and Supply Chain Conference in Dublin last week, I asked for a show of hands on who had experienced shortages, delays and cost over runs. Around 80% of people raised their hands. When asked if they were shown ‘forgiveness’ due to the nature of global shipping congestion, chip shortages and similar issues, the same people raised their hands. When further questioned as to how many felt that forgiveness would extend if we still faced similar issues next year – nobody raised their hands.
This is the crux of the crisis being felt by many supply chain managers. There is an understanding that in many ways, supply chains have faced a perfect storm in 2021, but there is also an expectation that leaders will be able to navigate a way out of this storm in the coming year.
As companies look at their options to improve product availability for the 2022 season, there are several levers that they can consider:
- Migration to near shore manufacturing – depending on the scale, this may be a multi-year process. Companies routinely assess their supply chain footprint based on changing input costs, and the pace of change will vary by individual company circumstances. Large scale shifts rarely occur overnight, and they are frequently constrained by supplier capacity and capability in receiving locations. Over the last few years we have seen increased interest in the migration of manufacturing from China to near shore locations in Eastern Europe and Mexico.
- Increased investment in inventory – with increased lead times and supply variability, additional inventory will most likely be required to buffer supply. Optimisation techniques can be used to quantify the inventory requirements based on target service levels. These techniques can also identify pockets of overinvestment in inventory across the portfolio.
- Portfolio – simplifying the SKU portfolio may help to offset some required increases in inventory and reduce the risk of obsolescence. Another way to achieve this may be through the introduction of postponement – keeping inventory in a generic state until firm demand is known.
- Time – starting the planning process earlier for the season may help companies unlock additional logistics routes to market. It may also help minimise peak season surcharges and position inventory ahead of peak logistics volumes.
- Demand shaping – being creative with pricing and customer incentives can help to sell the products that are available
- Partner collaboration – manufacturing and logistics partners are often best positioned to offer alternatives – particularly where they approached ahead of the season. They will also need to manage additional capacity and revised timings based on plans being put in place.
- Scenario planning – for larger enterprises, supply chain network design tools can be configured to represent current supply chains structures. These tools can also be used to test the impact of changes in input prices, lead times, to map disruptions through a ‘digital twin’. This can be a powerful tool in evaluating potential network changes and strategy options.
With peak season now upon us for many sectors, the immediate focus in the coming weeks will be supply chain execution, but we expect the planning cycle for 2022 to commence significantly earlier than normal.
If you want to discuss your strategy with our team, reach out to us at any stage.