With disruption driven by COVID-19 continuing to overwhelm business across the globe, the need for end-to-end supply chain visibility and management has never been so urgent says by Richard Seel, Managing Director, delaware North America.
It has become increasingly clear that if businesses across the manufacturing space want to manage disruption and adapt to new demands quickly, they need to have a good understanding of, and visibility over, their supply chain, in order to de-risk their operations.
While manufacturers often have a tight relationship with their immediate Tier 1 or Tier 2 suppliers, they often have a much less clear understanding of commodity suppliers working at the start of the supply chain. In other words, while key components or sub-assemblies manufactured by the Tier 1 and 2 businesses are clearly understood, the sources of those components are far less so.
Scoping the challenge
If multiple suppliers and organisations in the upper tiers are being supplied by the same supplier lower down the hierarchy – and little is known about that supplier - this will inevitably build an inherent risk into the supply of those components,
To mitigate the risk, manufacturers are likely to want to increase both the inventory they hold and the working capital at their disposal. Operating costs will increase as a result and they are likely to find it more difficult to plan, forecast and ensure supply to customers. Moreover, a lack of supply chain understanding can create exponential complexity and a knock-on effect for upstream and downstream customers and suppliers.
Exploring the Benefits
So, if organisations had full end-to-end visibility of their supply chain, how could this actively benefit and improve operations?
Ultimately, it is about enhanced understanding and control. Manufacturers will be able to leverage this capability to help optimise inventory and working capital, rather than having to build stock to help mitigate supply risk. They will also be able to use it to model their supply chain and carry out an element of ‘what if’ analysis. This is likely to result in improved planning and risk mitigation, and greater facility to switch suppliers in the event of disruption, ensuring continuity of supply.
Better supply chain modelling could also help manufacturers improve tracking and visibility from source and become more responsive to customer demands as well as improving the collaboration between suppliers, reducing operational costs for the manufacturers and the risk of disruption to its end customers.
Achieving enhanced supply chain visibility is not easy. It requires manufacturers to work closely with suppliers and ensure that they understand them right down the chain. Beyond that, it also requires the sharing of more data. This includes production plans across the chain to ensure better forecasts and the introduction of new technology in order to capture data at all stages and interactions with the supply chain, helping to ensure full end-to-end traceability.
Looking to the future
Yet, ultimately, recovering from the pandemic may prove to be the tipping point for change across the supply chain. Manufacturers will make more of a concerted effort to address vulnerabilities that have been exposed by the virus. Organisations will focus on developing stronger supply chains and understanding where weaknesses occurred and how they can be mitigated. Doing so will involve detailed analysis of existing data and relationships.
In terms of the latter we anticipate manufacturers will be looking to work more closely with existing suppliers to understand how they can improve the end-to-end visibility, while at the same time diversifying suppliers and potentially using suppliers closer to home in order to reduce supply chain risk.
Moving forward, there may also be a need for nearshoring to diversify to a more local manufacturing base. Samuel Roscoe, Senior Lecturer at the University of Sussex Business School and Associate Fellow of the UK Trade Policy Observatory commented "Yet, while nearshoring brings production closer to the customer, it presents an element of risk when borders are closed, and governments restrict exports because of a new coronavirus outbreak or second wave of COVID- 19. Another option is to establish parallel supply chains where a percentage of production volume (20-30%) is located in the UK. The UK based supply chain would have the capacity to ramp up production volumes to 100% during a crisis and would include UK based packaging suppliers and final product assembly. The remaining 70-80% of production could remain overseas. If it took the UK based supply chain 3-4 months to ramp up production volumes, then 3-4 months of finished goods inventory would need to be held in the UK". Government support will be required to create the legislative environment to ensure manufacturing can be locally sourced.
As the virus abates, we will also see a desire among manufacturers to adopt some of these advanced technologies to help future proof themselves for crises to come. Blockchain and AI look set to form a critical tool in manufacturers’ armouries going forward.
While blockchain provides a secure means to track and trace products, organisations will still need to adopt an approach, irrespective of blockchain, where they are working with their suppliers to build this traceability information along the entire supply chain. AI could be used to try and develop the links and build that database. There will be an expectation to be able to track and trace products up and down the supply chain, so as to eliminate issues or find alternatives quicker.
But beyond even just the use of blockchain and AI, supply chains will need to become more digitally connected. Manufacturers will look to extend this all along the chain across multiple suppliers and customers to best position their operations for future success in the post-pandemic world.”