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The Supply Chain - Part 3: The Times They Are A Changin'

“Times and conditions change so rapidly that we must keep our aim constantly focused on the future.” - Walt Disney

Walt’s words of wisdom regarding change continue to ring true to this day. One thing we have all experienced over the past eighteen months during this pandemic is change. Change that has affected our personal, day-to-day lives, and how the world does business.

From a business perspective, it changed things we can easily take for granted: shipping and material production--two critical elements of the Supply Chain. As we discussed in parts one and two of this series, even the smallest changes can dramatically impact the supply chain which in turn affect how our businesses operate. When larger changes occur, particularly to critical elements like "shipping and material production", the ripples can be even larger.

Will the pandemic caused changes become permanent? Will things go back to the way they were before the pandemic took hold? Or, when the dust settles, will we end up somewhere in-between? Let us look at a few of these changes and how they will impact all of us in one way or another.

The Rise of On-Demand Supply Chains

The “traditional” supply chain operates based on forecasted product demand using historical data (previous sales) to determine their company’s needs, with materials then being ordered accordingly. This really was the only way to estimate what a company required. But tech is now allowing us to turn from the past and as Walt suggested, look to the future. With the introduction of AI and other automation initiatives, companies can forecast in real time. This makes the supply chain more agile and sensitive to current consumer demands by adapting in real time. The volume of available data that can have an impact on the supply chain is staggering. It's easy to see how some small piece of data, like a storm in the pacific that disrupts the sea lanes, could be missed and delay a shipment by weeks. A more advanced AI based system may have seen that and recommended an alternative that would have gotten the shipment in on time.

Companies like Merck, the giant biopharmaceutical company who partnered with Aera Technology, implemented the On-Demand philosophy for forecasting. By using the AI technology, they improved their level of service to hospitals from an already impressive 97% to an almost perfect 99.9%.

One obstacle--and it is a big one--a company can face with implementing this AI driven on-demand system is the initial investment… the costs are often staggering, but so are the benefits. How does technology of this magnitude impact the typical rubber stamp maker, who must often react to demands that are completely unforeseen? The real impact to the stamp maker comers further back in the supply chain. The more advanced the supplier system is, the extracting, refining and processing of raw materials will be more efficient and more readily available. Transportation will be able to adapt faster to worldwide changes. So when you need something in a large quantity your vendor may not have it immediately available, but with the implementation of AI they may be able to get it to you faster than before.

Local or Regionalized Production & Supply Chains

Many companies are looking at bringing their factories and distribution facilities closer to home. They see advantages in reduced transit times which in turn result in reduced transportation costs. By bringing production local, companies can often take advantage of incentives that local governments provide in order to promote relocating manufacturing. But relocating production facilities is not easy, and all aspects of production, of which there are many, need to be taken into consideration. Availability of raw materials, reliable employees, and transportation lines are just a few of the numerous factors that need to be considered. But if done correctly, bringing production closer to home can be successful while strengthening that supply chain at the same time.

Holding More Safety Stock

Holding more stock can be a risky strategy for a business, but in the current climate, it is a popular one. It is the supply chain equivalent to a “rainy day account”, and having additional product to fall back on when the unexpected happens can give a sense of security to a company. However, employing this strategy comes with inherent risks. Holding more safety stock means having room to store it, which means larger facilities are required to be leased and managed than might otherwise be necessary. Also, that extra stock ties up additional capital, capital that could be used for other purposes such as expanding the business. And of course, all of this is for naught if that extra product becomes obsolete before it is sold, which equals wasted materials, time, energy and money.

If you are thinking about placing larger than normal orders, and holding extra safety stock, it is imperative that you communicate to your vendor that this is what you are doing and what items are part of your plan. This way they can assist you in the process and ensure that there are not unforeseen consequences down the road. They will know that this is a one-time purchase and not a new trend, which will impact their forecasting.

Like Walt said, it is imperative that we always keep an eye on the future. Change, both good and bad, is inevitable and being prepared is the difference between survival and failure. Are the changes that we are currently experiencing in the world, both business and personal, going to be our new normal? Will we ever revert to “business as usual” or will it result in some hybrid of the two? We may have better luck asking that to a fortune teller rather than a business analyst. And while the future is always uncertain, it is at least going to be an adventure… you can be certain of that.


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