The recent worldwide turmoil due to the pandemic has forced organizations to rethink their supply chain strategy. Particularly, right now there is no room for supply chain managers to let their guards down and make any critical mistakes. This post has discussed in detail the five biggest mistakes that supply chain managers may make in 2021, and what they should do to avoid them.
When the worldwide pandemic and other global events unfolded in 2020, the supply chains of organizations suffered a major setback due to disruptions of the process. Particularly, organizations with spread-out networks all over the world faced major challenges to keep their supply chains running.
The COVID-19 pandemic has forced supply chain managers to re-assess their supply chain strategies. According to a study by the Aberdeen Group (marketing behavior study company), senior supply chain managers at global enterprises with top-notch supply chain performance indicators have a bullish perception of supply chain management.
In recent years, most organizations have been focusing on infrastructure spending, trade agreement, and free trade zones. On the other hand, a few other companies are obsessed with managing costs and growing their operations.
More studies have revealed that the supply chain in an organization constitutes more than 50 percent of the total cost of production. Therefore, to prevent supply chain delays and ensure seamless supply chain management, organizations need to adopt advanced technologies to recover quickly from disruptions. The recent developments have made supply chains even more complex, and supply chain managers must change their approach and avoid making critical supply chain mistakes.
Here we have listed the five biggest mistakes that supply chain managers are likely to make in 2021 unless they take a proactive strategy to avoid them.
- Quantifying Functions by Spend
Prioritizing and quantifying the efficiency by spends is the first in the list of the biggest mistakes that supply chain managers make while managing the supply chain. In simple words, supply chain managers prioritize functions based on which suppliers provide most of the sources and services, and they should ideally procure from multiple sources.
If a manufacturing organization finds that 80 percent of its total budget goes to its top 10 suppliers, supply chain managers should review the process to optimize costs and efficiency. The existing practices may have worked in the past until the requirements of making changes crop up for creating supply chains with multiple layers across the world. Supply chains that depend solely on a single source are more likely to face disruptions. Keep in mind that organizations are integrating Blockchain-based systems to automate their supply chain. For example, Canada-based company Federated Co-operatives Limited (FCL) has collaborated with Morpheus.Network to integrate Blockchain, Machine Learning (ML), and Optical Character Recognition with its supply chain.
Supply chain managers can no longer depend on a single source for the procurement of materials or parts, or else it will likely become a major drawback in the supply chain. Supplies without a backup source are too risky in the current scenario. This is why supply chain managers should consider the financial impact due to a single source and think of multiple sources for supply chain sustainability.
- Mistakes Regarding Supply Chain Accountability
Mistakes in terms of a poor accountability framework may prove to be costly for an organization in the long-run. More often than not, supply chain companies blame disruptions on the Chief Procurement Officer. It is unclear why organizations do not hold anyone else responsible for supply chain disruptions. This accountability issue leads to confusion within organizations in terms of responsibilities when restoration of the supply chain normalcy is required.
Supply chain managers should assign the responsibilities of supply chain disruption to specific persons and make sure that these individuals receive proper training with adequate infrastructure and tools to effectively carry out their duties.
Having a proper accountability framework in place when supply chain mistakes occur is a sign of effective leadership and it helps in optimizing a supply chain. It also requires the top management to review the responsibilities of supply chain managers carefully and assigning specific tasks to them, along with accountability. This will allow the managers to deal with the crisis efficiently.
- Lack of Planning for Business Disruptions
Another major mistake of supply chain managers that can cost an organization dearly is ignoring to formulate a plan for potential business disruptions. If the supply chain strategies of an enterprise are not ready to embrace unexpected changes for its sustainability, it may lead to an existential problem, even if it is for the short-term.
Supply chain managers need to have a plan in place to deal with supply chain disruptions if unexpected turmoil crops up. This way, in the case of supply chain disruptions, a company can deal with them fast and minimize the problem that may affect the supply chain. It is also crucial to design a supply chain in line with an organization’s future goals. If supply chain managers only look at an organization’s current requirements when formulating a strategy, it could be difficult to adjust it in the future.
Companies need to prepare for any type of disruptions, which may suspend the supply chain flow. It is possible to achieve this by having a robust risk management strategy in place. Besides, managers need to carry out a rigorous supply chain analysis to detect any vulnerability and take immediate actions. Supply chain disruptions can pose a significant risk to a company regardless of its size. Even organizations with contingency plans may suffer due to unforeseen circumstances, such as natural disasters, global health risks, or geopolitical actions.
A few more occurrences of supply chain disruptions are:
Fluctuating Price: The pricing of materials and technologies in the manufacturing and supply chain industry tends to fluctuate often. This is why supply chain managers must keep a tab on pricing trends and analyze market fluctuations. If price fluctuations occur due to unforeseen natural events or political/social turmoil, it would be better to prepare for the increase or decrease of a specific material or commodity’s price.
Internal Cost Management Crisis: Supply chain management costs of an organization are a continuous struggle that supply chain managers often undergo. Depending on the stability or turmoil of the marketplace, reducing the costs of a product can be increasingly difficult.
The typical supply chain process and various touchpoints are responsible for internal costs:
Unloading Products >> Verifying >> Shifting to Warehouse >> Kept in Warehouse >> Picked Order from Storage >> Reviewing >> Packaging >> Loading >> Delivery
Now, depending on the touchpoints during this process, which is typically six or seven times, the total costs are determined. It is important because, at every touchpoint, the operating costs of the supply chain include, labor costs, equipment costs, damage costs, and more. This is why supply chain managers need to figure out how they can lower the number of touchpoints of a product. It could be getting rid of unnecessary steps or using some automation.
Transport Delays: Delays during transportation are often a major disruptive cause that slows down procurement. Such delays may occur due to the inefficiency of a company’s supply chain partner or because of unavoidable circumstances, such as bad weather, landslides, hailstorm, road blockades, etc. To avoid such situations, supply chain managers need to make an agility plan in advance. Besides, enterprises need to implement technologies like Blockchain to improve logistics agility.
- Falling Short of Practical Risk Management & Lack of Visibility
The efforts of optimizing the procurement and other processes involve several risks, which are below:
- Increase in demand
- Supply shortages
- Quality issues
- Delivery delays.
All these listed factors make risk management an even more challenging process, and organizations need to implement long-term solutions. For example, in the food and agriculture sector, the integration of Blockchain and IoT can track temperature and humidity to identify the ideal conditions for crop production. A country like Mexico has started using these technologies to optimize agricultural production. Organizations need to take such initiatives to align their efforts to reduce risks using metrics that will help in developing long-term solutions.
Besides, low supply chain visibility within an organization makes it challenging for supply chain managers amid turmoil like the ongoing pandemic. Sometimes managers are clueless about the sources to procure materials or parts and they do not have thorough knowledge about their end-to-end supply chain. For instance, one supply chain manager may believe that a part will come from a dual-source, which may actually come from a single-source.
On most occasions, supply chain managers admit that they are unable to address the low supply chain visibility issue. They need to be more proactive and step up to solve the issue. In that effort, supply chain managers need to correct the areas of the supply chain, which are likely to have the maximum economic impact.
In the dynamic supply chain industry, the ability to identify all the risk factors and formulate strategies to solve them is critical for an organization to stay afloat even in the most challenging times. That onus of critical analysis and implementation of practical strategies fall upon supply chain managers. A smart supply chain organization is as smart as its supply chain managers and they need to avoid critical mistakes and develop the vision, strategies, and solutions required for success.
- Lack of Automation & Optimization of Business Processes
On many occasions, supply chain managers are too busy to take out time to optimize the business processes of their organization, including the crucial matter of sourcing. Particularly, after the pandemic in 2020, streamlining sourcing has become a major issue. Supply chain managers need to figure out whether they are sourcing the right items from the right locations within the estimated timeframe.
Supply chain managers often make the mistake of not understanding how to manage and leverage product and material sources strategically across a supplier network to gain the maximum benefit. When it comes to successful supply chain optimization, Toyota is a good example. The company has developed multiple supply sources in all of its manufacturing regions. The company has retained two suppliers for each of its products — one primary and one secondary source. The second supplier also stays on standby and ready to provide backup if there is an interruption of material flows.
Lack of supply chain optimization usually occurs when an organization grows or shifts its strategic focus. As a result, supply chain practices that were effective once, become less efficient. Optimizing a supply chain involves improving supply chain transparency. An end-to-end supply chain visibility makes the job easier for supply chain managers to collect accurate data, maximize efficiency, and develop effective risk management strategies. Besides, it will significantly improve security controls.
To solve the underlying issues and streamline the supply chain, managers can focus on using suitable supply chain technologies. These days, the integration of Blockchain, artificial intelligence (AI), machine learning, and the Internet of Things (IoT) can help an organization to collate, combine, and interpret data from across the entire supply chain. Out of these, the most effective solution is Blockchain, as it can solve the anomalies within the supply chain even at the deepest level. The Blockchain can function at the enhanced level with AI, IoT, and ML to set up and measure KPIs, identify loopholes, and help incorporate effective courses of action.
To correct and avoid supply chain mistakes, supply chain managers can opt for business process automation (BPA). With its help, they can automate procurement, streamline inventory management, accounts payable (AP), and manage documents efficiently. Besides, BPA also enables to collection and track of important data, access various business information to make plans, and infuse agility into the entire process.
Automation can minimize the glaring supply chain mistakes. For example, supply chain managers can recommend using highly configurable systems like Software-as-a-Service (SaaS). Such systems will help a company to adapt and customize according to the requirements of the supply chain management strategy.
The bottom line is to manage supply chain efficiency Supply chain managers need to avoid these critical mistakes listed here, besides having a backup plan to recover from disruptions. The process of recovery from a disruption in the supply chain will depend on factors, including the source of supply, manufacturing location, inventory, and volume. Also, the mistakes by supply chain managers to insist on processing orders and obtaining supplies right before their requirement results in more dependence on lead times. This approach needs to change as it often leads to more mistakes in supply chain optimization.
If you are trying to transform your organization’s supply chain to become leaner or more agile, it may also cause problems. Typically, for most organizations, a hybrid approach works the best. Finding the right blend of two approaches enables you to make your supply chain streamlined, cost-efficient, and flexible enough to embrace the changing supply and demand.
If you are thinking of integrating your supply chain using emerging technology like Blockchain for automating and optimizing end-to-end supply chain events, consult supply chain experts for better insights.
About the Author
Dan Weinberger, UN Supply Chain Expert and CEO of Morpheus.Network
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