The Stream by River Logic

The Five Biggest Supply Chain Challenges of 2020

July 14, 2020 | By River Logic

COVID-19 continues to disrupt world economies, even in countries that have the pandemic under control. Additionally, despite pressure to get the economy back up and running, ongoing uncertainties, lack of consumer confidence and supply chain challenges continue to exert a stranglehold.

The extent is revealed in the latest IMF forecasts that anticipate U.S. GDP for 2020 will be 8% lower than 2019 and recovery in 2021 will be muted.

In December 2019, when the first rumors about this dangerous virus surfaced, no one anticipated the extent to which it would spread, nor the resulting human and economic devastation. Supply chains, especially those relying on international trade, were hardest hit. Systemic supply chain weaknesses were laid bare, and while all suffered, companies that had not kept up with critical supply chain trends were hardest hit. Looking ahead, as companies scramble to reestablish supply lines and restart manufacturing, they need to take into account six crucial supply chain challenges.

Top Challenges Facing Supply Chain in 2020

Unwelcome as it is, until such time as there's an effective vaccine or the virus mutates into a less harmful strain, we need to accept the new normal is here to stay. This means there's a need to practice safe behavior such as social distancing, appropriate wearing of masks and a firm response to the almost inevitable surges in infection that threaten supply chains and result in localized lockdowns and business interruptions.

1. Limited Granularity of Data

When China shut down, many who thought they understood their supply chains discovered that knowing Tier 1 suppliers wasn't enough. Few appreciated the extent supply would be affected by the shutdown of Tier 2 and Tier 3 suppliers located in the Wuhan region and later, as the virus spread, in other parts of the world. Much of this was due to faulty assumptions regarding Tier 1 suppliers and possibly a degree of wishful thinking. As New York Governor Cuomo said in his daily COVID-19 briefings, "Let’s start with facts. While we all have opinions, let’s start by reviewing the facts."

It's absolutely crucial organizations map out their supply chains, in detail, to identify vulnerabilities and weaknesses. This information will allow fast and decisive action when lower level supplies are threatened.

It might be time to stop focusing so much on supply chain visibility and invest more resources in understanding supply chain complexity. Granted, this isn't an easy task, particularly in large organizations, but the events of 2020 have shown what happens if companies don't appreciate supply chain weaknesses. Naturally, it's not just the impact of COVID-19 that's important, but companies also need to guard against the potential impact of other events that could exacerbate supply chain challenges, such as:

  • Trade wars
  • Natural disasters
  • Sanctions
  • Civil unrest
  • Strikes

2. Single-source Amplifies Supply Chain Risk

For numerous reasons, many companies have focused on single-sourcing strategies, possibly because this was perceived to be the lowest cost scenario. Unfortunately, this also means companies are vulnerable if suppliers face shortages or production interruptions. As Warren Buffet said, "Only when the tide is out do you discover who has been swimming naked."

In a complex world facing the sorts of supply chain challenges referred to above, single sourcing is risky and a guaranteed way to lose sales when disruption occurs. Instead, companies should focus on risk mitigation strategies to anticipate and minimize supply chain challenges and risks.

Overcoming Your BiggestRisk Challenges in 2020 and Beyond. Download the guide.

3. Slowed Digital Transformation

Access to data is crucial for effective decision-making. Unfortunately, many organizations have a mishmash of manual and digital systems that effectively trap information within functional silos, meaning that decision-making is hampered by an incomplete picture.

As Colin Parris, the CTO of GE Digital says, "COVID-19 has emphasized the need to look at financials to understand base cost versus variable cost. Digital (transformation) could enable leaders to make much more intelligent decisions. This is becoming more vital than ever."

It's crucial companies devise ways to access supply chain data through the introduction of technologies that allow data to flow freely through the system. Additionally, organizations need technologies such as a supply chain digital twin that allow them to monitor, manage and observe the impacts of decisions.

4. Maintaining Traditional Inventory Strategies

Traditional inventory control strategies focus on past performance to determine current inventory strategies. Precise algorithms are used to determine exact requirements. The problem with this approach is that it doesn't take into consideration unexpected events, nor is it agile and is often completely divorced from current realities.

Conversely, Jonathan Whitaker from Chainalytics believes that "Continuous supply chain alignment will be the new norm." This view is supported by Lora Cecere of Supply Chain Insights, who believes we need to "navigate a world of gray, there will be no new normal." She recommends an outside-in approach to supply chain challenges that looks at using streaming data to drive insights, determine market shifts and establish demand. This, together with the next generation of advanced inventory optimization techniques, can help handle unpredictability better than standard inventory optimization solutions. Another way of looking at this is to switch from traditional demand planning to what can be termed demand shaping based on what-if analyses to determine expected demand and deal with supply chain challenges.

5. Lack of Actionable Data and Insights

A common theme facing business leadership, and supply chain management in particular, is they often don't have sufficient information at hand to make informed decisions. Added to that, supply chain complexity makes it difficult to evaluate multiple alternatives, trade-offs and scenarios to arrive at the best or right decision.

While traditional transactional-based ERP excels in handling huge volumes of data, the way information is captured, handled and stored means it's hard to use it for identifying forward-looking trends. The same applies to most business analytics that are great for reporting what happened in the past, but provide limited insight into future supply chain challenges.

What's needed when dealing with supply chain challenges is an ability to interrogate data to determine an optimal solution. This can be likened to what Shigeo Shingo meant when he said, "A relentless barrage of why's is the best way to prepare your mind to pierce the clouded veil of thinking caused by the status quo. Use it often."

The answer to this dilemma lies in the use of optimization techniques that form the basis for modern prescriptive analytics. Based on advanced modeling techniques, prescriptive analytics allows you to create a model of your supply chain that accurately reflects how it works, taking into account all inputs, outputs, and constraints, together with an ability to measure trade-offs. Additionally, this form of supply chain modeling allows you to use the large volumes of structured and unstructured data available to the organization to evaluate different scenarios and determine the best way to overcome supply chain challenges and achieve supply chain goals.

Getting to Grips with Today's Supply Chain Challenges

The COVID-19 pandemic has brought about unprecedented supply chain challenges. Nothing in our recent past can compare, not even interruptions due to major weather events and political disruption. Historical norms no longer apply and, for the foreseeable future, business has to deal with a new abnormal normal.

Events of the past months have revealed how little we know about our supply chains. Cost-driven supply chain strategies have concentrated supply chain risk leading to widespread disruption. Historical inventory management strategies have been found wanting. And the lack of digitalization has meant that crucial information is hidden away in silos and obscure legacy systems.

If you've been holding back on advanced analytics, now is the time to reconsider.

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