It’s no secret that today’s supply chains have become more complex than ever, with socioeconomic and market dynamics underscoring organizations’ need to respond to an outside-in, demand-driven world.
But companies must now factor in a host of new variables, such as rising protectionism and nationalism across the political landscape. This is forcing many to reexamine their business-continuity risks and embrace new sourcing strategies. Here are six supply-chain strategies designed to help enterprises thrive in the current environment.
Strategy No. 1: Adopt a demand-driven planning and business operating model based on real-time demand insights and demand shaping. Demand-prediction capabilities continue to mature as supply chain management teams utilize ever-more powerful digital tools. Artificial intelligence technologies and internet of things (IoT) networks have gotten even better, allowing SCM teams to take action more quickly, and automatically adjust their supply chains based on real-time insights to match expected demand.
The cloud continues to play a growing role in the new supply chain. More companies are moving data and apps to the cloud, allowing the creation of unified data models that are augmented by external sources. This is driving a new level of predictive capability and planning accuracy not available just two years ago.
Validating the trend, more companies are seeing their supply-chain modernization investments bear fruit. Based on our recent research, companies utilizing the cloud improved delivery performance and increased revenues by 20%-30% on average. They also cut logistics costs by 5%-25% and slashed inventories, lowering working-capital requirements by 25%-60%. Asset utilization jumped by 30-35%.
Strategy No. 2: Build an adaptive and agile supply chain with rapid planning and integrated production. Agility is still the name of the game this year when it comes to supply-chain management. In fact, companies are getting even better at aligning planning with manufacturing, driving greater operational speed and flexibility.
Yet a fully integrated solution still seems beyond the reach of some companies. A 2014 study found that 55% of businesses have only “modestly integrated planning across the company.” A mere 9% said they had a “highly integrated supply-chain planning environment.” Companies still struggle with these issues to this day.
The problem might be the sheer volume of data and analytics required to properly integrate planning with execution in real time. But this barrier is now falling, with the introduction of cloud-based platforms that link financial and materials-planning tasks to business-execution activities such as procurement, manufacturing, and inventory management — and do it directly across a common online interface. For the first time, companies can create a zero latency plan-to-produce process, allowing them to act faster and adapt seamlessly to the dynamics of their markets.
Strategy No. 3: Optimize product design and management for supply, manufacturing, and sustainability, to accelerate profitable innovation. The days when companies ran product development and supply-chain planning as separate functions are coming to an end. To stay competitive, the tradition of “throwing product designs over the wall” to supply chain planners — the ones who figure out how to source and build the products — is no longer fast or efficient enough.
Consider the market for mobile phones, where competition is driving manufacturers to develop and launch new models every year. Increasingly the only way to do this is by merging design teams with supply-chain planners on a single (usually cloud-based) platform. These new collaborative systems, as well as smart procurement practices such as supplier prequalification, can help product developers source the right components up front, based on factors such as parts availability, quality, and cost.
Our research shows that when done right, integrating design and supply-chain planning process can lead to 10%-20% faster time to market, 10%-20% greater product revenue, and 10%-25% reduced scrap and rework expenses.
Strategy No. 4: Align your supply chain with business goals by integrating sales and operations planning with corporate business planning. Business risks for companies have risen significantly in the last couple of years. From Brexit to tariff wars, leaders are facing a growing array of market uncertainties. This is why companies need to integrate their tactical sales and operations planning (S&OP) programs with their strategic budget and forecasting efforts. The goal is to create a planning capability that translates macro business priorities and risks into a set of on-the-ground execution tasks that are continually updated to reflect changing market conditions.
Integrating business planning, S&OP, and supply-and-demand planning improves business agility by creating an efficient closed loop from planning to execution to performance management.
Strategy No. 5: Embed sustainability into supply chain operations. Sustainability in all its forms, both social and environmental, has joined growth and profitability as a top priority in the C-suite. And for good reason: sustainability and the bottom line are no longer mutually exclusive. Just this past year, the Business Roundtable released its Statement on the Purpose of a Corporation, declaring that sustainability should be a key priority for companies, in addition to generating profits for shareholders.
Putting a spotlight on sustainability places a new focus on supply-chain practices, many of which can have a sizeable impact on environmental health in areas ranging from carbon emissions to industrial waste and pollution. Today there are myriad strategies companies can use to optimize their supply chains for sustainability:
- Supply-chain teams can develop long-term targets that improve key measures of sustainability such as the company’s carbon footprint, energy usage, and recycling efforts.
- Teams can deploy new technologies to ensure responsible environmental practices such as optimizing truck routes to reduce fuel consumption and carbon emissions across the supply chain.
- Companies can move to a shared data model to provide the end-to-end visibility and real-time insights needed to optimize supply chains and ensure they are sustainable.
Strategy No. 6: Adopt emerging technologies to ensure a reliable and predictable supply. Businesses need a buffer to deal with unexpected shifts in demand, but too much inventory can raise costs. By improving demand accuracy, new technology can reduce inventory requirements and speed reaction times, creating a nimbler and more reliable supply network.
With today’s global trade volatility and ongoing tariff wars, it’s essential to make the right decisions about where to source materials, make products, and deliver goods in order to minimize costs and ensure compliance.
What’s also new is that AI, machine learning, and IoT are no longer just buzzwords. Today they’re market-proven technologies that are streamlining supply chains and driving business agility in companies worldwide. With these capabilities now being built directly into cloud solutions, customers can harness their potential right out of the box. This means you can get started with truly business-changing technologies without the need to invest in complex projects or costly, hard-to-find skillsets.
Jeff Stiles is vice president of supply-chain product marketing at Oracle.