Recent upticks in inventory shortages, labor issues and capacity reductions have been plaguing businesses across industries, making supply chain management increasingly more complicated. Many leaders have struggled to ensure continuity of supplies through the disruptions, confirming findings from global professional services firm Accenture Plc that only 4% of today’s supply chains are “future-ready.”
To withstand the known and unknown challenges of present and future supply chains, companies need to embrace modern procedures and technologies to help ensure business continuity — whatever the circumstances.
The Consequences of Disruption
One of the largest pain points for manufacturers is today’s ongoing turbulence in the shipping industry. Port closures like the one at Ningbo-Zhoushan in China and backlogs from the Suez Canal blockage earlier in 2021 have limited transport capacity. Shipping costs have risen so sharply as a result, that a U.S. manufacturer filed suit against two of the world’s largest ocean carriers, a sign of growing discontent around exorbitant transportation rates on the spot market.
Transport isn’t the only thing impacted by recent crises. Extreme weather events and the ongoing pandemic are also causing shortages of direct and indirect materials. Constraints on the supply of raw materials, including those needed for semiconductors, PPE and various plastics, have led to factory shutdowns, price increases and production delays during a period of uniquely high demand.
Disruptions such as these have led to a record number of canceled contracts and the rise of spot bidding. When supply and capacity is strained, previously negotiated rates are often thrown out the window — leaving procurement teams to manage dozens (if not hundreds) of spot bidding events at once, as they scramble to re-source new supply.
Reactive spot bidding is incredibly inefficient to do at scale. Spot bidding still requires a series of repetitive steps: reaching out to potential carriers or suppliers, sharing specifications, collecting data and making award decisions. Since it’s often conducted outside of a formal e-sourcing process, offline spot bidding results in untracked data that teams can’t leverage for tracking spend, forecasting or reporting purposes. This practice can also introduce bias, where companies favor certain suppliers in the interest of speed, reducing the competitive tension that may get them a better offer.
New Problems, Old Strategies
Many supply chain leaders failed to predict the sheer volume of canceled contracts or the rise of spot bidding, among other challenges. Now, as they manage the fallout, it’s impossible to mitigate the impact of new problems with old, outdated processes and tech.
In a study on future preparedness conducted by Accenture, supply chain leaders cited a lack of cohesive strategy and technology as the biggest hurdle to building future-ready systems. Teams relying on archaic processes and legacy solutions can’t efficiently re-source new lines of transport or supply. As such, when a sourcing need arises, buyers often turn to what’s familiar.
In many cases, incumbency can present a major barrier to success. Successful leaders understand that to remain competitive and guard against disruption, they need to integrate new suppliers and identify which supply lines no longer hold value. Buyers who overlook emerging suppliers to preserve incumbent relationships often do so at the expense of innovation and resiliency. For example, benchmarking incumbents against historic rates allows you to factor in changing prices and market conditions — and better identify incumbent suppliers who are pricing according to the market, and those who may be leveraging their position to increase costs.
In an effort to upgrade these methods, many sourcing leaders are overhauling their old systems and looking to streamline processes with optimization and automation technology for a more modernized supply chain.
Optimization and Automation Solutions
Respondents from the Accenture survey who reported that they were “future-ready” were twice as efficient and three times more profitable than their underprepared peers. A key way to achieve this level of preparedness is to optimize processes wherever you can — especially in the procurement function.
Optimization allows sourcing teams to balance cost and speed objectives, support large-scale events, give suppliers flexible bidding options and go beyond the “lowest price wins” award model. With the right solution, teams are provided the capability to handle everything from spot bids to large-scale RFPs, with a supplier-friendly interface that improves your direct-materials award decisions.
Many leaders are also looking to automation — especially in shipping and air transport. AI-powered sourcing bots can establish spot bidding and mini-tender events within minutes, managing and automating everything from inviting carriers and collecting bid data, to generating award recommendations based on a set of criteria. Up to 90% of this work can be automated, improving scale and efficiency.
This level of digitization not only produces better award decisions with more speed and insight — it also helps teams free up time and money. Digitization goes beyond cost-savings by factoring efficiency, CSR goals and time-savings into a company’s bottom line. By reducing consuming, monotonous tasks, optimization and automation tech allows procurement professionals to do what people do best — focus on supplier relationships, accomplish broader corporate goals and drive innovation.
Though only 4% of today’s supply chains are aptly prepared for future challenges, nearly 65% of supply chain leaders see their operations as “predictive” or “insights driven.” Those already utilizing advanced data or analytics have a clear opportunity to strengthen their systems with modern automation approaches. Disruption isn’t going anywhere, and by leveraging optimization and automation to create a future-ready supply chain, companies can leave antiquated approaches behind and progress to modernity. The ability to face the future with increased agility, continuity and resiliency depends on it.
Alan Holland is founder and CEO of Keelvar.