The COVID-19 pandemic revealed to many leaders that our supply chains are more fragile than we thought. Much has changed over the last few years, and traditional supply chain management strategies are starting to buckle under the pressure.
According to a report from McKinsey & Company, 85% of global supply chains have experienced reduced operations and 6% have closed entirely. Additionally, The Economist reported that pandemic-related disruptions have cost companies 6%-10% of annual revenue, on average. What’s needed today to build truly resilient supply chains is to invest in visibility-enabled network agility over forecasting accuracy.
The challenge facing brands is in making the technological shift necessary to embrace network-wide data visibility. Despite relying more heavily on external partners to manufacture and package new consumer products, brands’ digital transformation strategies involving enterprise resource planning (ERP) systems rarely touch their extended networks. This omission of external partners from digitization strategies leads to a “black box,” or data blind spot, outside a brand’s four walls. This lack of external data can hamper production cycles, supplier communication, materials allocation and more.
Brands have to overcome technological inertia if they are to compete with agility in today’s complex market. As consumer demand grows more volatile, more sophisticated systems are needed to increase visibility, promote network transparency, enhance collaboration and optimize performance across a brand’s supply chain network.
Revisiting Traditional Strategies
Before diving into why visibility is crucial for improving supply chain responsiveness, it’s important to understand the current state of supply chains. First, consumers have more buying power today than ever before, which has led to radical market change. Through the internet and social media, buyers are much more informed with the ability to conduct their own research and access to peer reviews and recommendations. They can also purchase the same type of product through multiple channels, all competing for their attention.
At the same time, startup brands have historically navigated the market more nimbly and responsively than large brands. Over the past decade, the speed of these smaller brands has allowed them to take up greater market share from larger, traditional brands.
Going forward, the businesses that will succeed are the ones with agile supply chains that can respond quickly to drastic changes in the global ecosystem. The path to agility runs parallel with digital transformation that enables visibility both inside and outside of the supply chain.
Traditionally, brands and external supply chain partners — including co-packers and contract manufacturers — have operated on a transactional basis. Brands send orders to external partners and intervene only when orders risk being delayed. Co-packers operate independently, relying on their own capabilities to meet deadlines and service standards.
The issue with this approach is that it prevents supply chain networks from responding efficiently to drastic demand fluctuations. When brands and their external supply chain partners can’t share data in real time about order status, capacity constraints and more, it becomes nearly impossible to collaborate effectively to solve complex issues.
Better supply chain visibility breaks down the walls that have long separated brands from their external supply chain partners. Visibility illuminates the external partner network and creates a more open exchange of knowledge between all stakeholders. The best way for consumer packaged goods (CPG) producers to facilitate visibility throughout the supply chain is to adopt digital systems that can extend throughout the external ecosystem.
With the right cloud-based software platform, brands can digitize data flow between themselves and their co-packers and manufacturers, giving everyone access to the same information and improving collaboration in the process. Rather than rely on spreadsheets, e-mails and phone calls, all partners can refer to a shared digital solution that doesn’t require significant capital or I.T. skill to maintain.
Visibility Enhances Collaboration
When CPGs have more insight into what’s happening across the supply chain, they can collaborate with external partners in a way that’s beneficial for all involved. Multi-enterprise-focused collaboration enables supply chain partners to ideate, develop and fine-tune product offerings based on timing, retail channel and consumer demand.
Brands can also experiment with new product offerings with minimal investment. They can bring new co-packers into their networks that have unique specialties. Through these partnerships, brands can test different ways of fulfilling customer orders, explore new distribution channels and enter untapped markets quickly.
Furthermore, visibility-enabled collaboration accelerates time to market, allowing brands to capitalize on short-term revenue opportunities that would previously be out of scope for slow-moving organizations. More visibility across the supply chain means more opportunities for groups to connect, share ideas and work together to solve today’s supply chain challenges. Visibility alleviates the pressure to forecast accurately in a world where demand can rise and fall with little warning.
Visibility is also essential for optimizing overall supply chain performance. When CPGs have better visibility into supply chain operations, they can establish more meaningful key performance indicators and set clear expectations for external supply chain partners. With this information, both brands and their external partners can improve continuously and measure success more confidently, even in the face of disruption.
Furthermore, CPGs can cut costs from their supply chains, avoid overstocking inventory, reduce waste and purchase only what’s needed from a materials standpoint. Enhanced visibility also enables supply chains to run lean without introducing risk or quality-control issues, as leaders can trace all products throughout the supply chain with greater precision.
Supply chain networks that have gone through digital transformation are, of course, better positioned to optimize performance. Companies have the information they need to make smart decisions and the tools to work in lock step with external partners. Equally as important, modern supply chain software facilitates the type of cultural change that CPGs need to accept in order to survive the fundamental shift we’re seeing in what it takes to build reliable supply chains.
It’s digitally enabled visibility and agility, not forecasting, that will help companies thrive in the coming years. And when this visibility extends outside the internal supply chain to external partners, there’s more opportunity for all to capture.
Jason Tham is chief executive officer of Nulogy.
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