Prevailing wisdom holds COVID-19 responsible for our current supply chain woes. It’s difficult to argue against this point – mostly because it's not untrue.
But as with the carelessly discarded match that sparks a forest fire, keep in mind that conditions had to be just right to ignite a global supply chain conflagration.
What exactly were those conditions?
A loosening of controls . . .
There is no single explanation for today’s supply chain issues. If we look back, we will uncover a complex history of events that shaped our current supply chain models. The push to globalize and how it manifested in policy undoubtedly played a part. For example, back in 2005 or so, U.S. tariff and trade policies relating to WTO and NAFTA compacts triggered moves that cascaded across a broad swath of industries. Companies responded to dramatically different cost structures by seeking low-cost production in China, Vietnam, Singapore, and elsewhere.
Originally, these companies used their own ERP systems to maintain strong control over production and material flow in their factories. But increasingly, companies sold off their manufacturing interests and moved to a contract manufacturing model.
With this model, the manufacturer of the goods on the ground gained a high degree of autonomy – staying in business based on an ability to deliver quality final products on time. Essentially, brand owners or original equipment manufacturers (OEMs), gave up manufacturing control and visibility for the benefits of outsourcing – namely lower costs and fewer headaches.
. . . and the Lemony Snicket rule
During the “normal times” over the last two decades, this was arguably a good deal. But even before the pandemic, the cracks in the superstructure were starting to show.
Then, as happens in the Lemony Snicket books, A Series of Unfortunate Events started to hit us: Brexit, trade wars, climate catastrophes, wars, political upheavals, and cargo ships stuck in the Suez Canal. For quite some time now, it has seemed like those “once in a 100 years” events assumed by meteorologists and insurance companies were running ahead of schedule.
If we didn't know it before the pandemic, we certainly know it now: maintaining smooth-flowing supply chains is going to require something a bit different from what we've been doing for the past decade or two.
A return to onshoring – or greater control?
The pandemic showed the vulnerabilities of the global supply chain, resulting in a growing chorus of voices calling for increased onshoring. Certainly, this makes sense for sectors of strategic importance. Take for instance, the recent CHIPS Act, which provides attractive subsidies to semiconductor manufacturers to bring their operations back to the United States to minimize dependence on overseas manufacturers.
For less critical products – say, coffee machines or sneakers – the cost-benefit analysis still argues against onshoring. Rather, the trend has veered toward re-exerting greater control over manufacturing and supply chain management processes. Only now, instead of managing it all directly out of internal ERP systems, companies are flocking to business networks.
From buffer stock to orchestration
At one time, a common strategy was to weather the storm of supply chain disruptions by flooding supply chains with inventory to maintain suitable levels of buffer stock. But today, the pandemic and other shocks in our Series of Unfortunate Events have lowered the water levels for global supply chains, exposing the dangerous rocks below.
One of the most dangerous rocks is rising inflation – which has increased the price of inventory at a time of almost unprecedented inventory scarcity. Seeking to mitigate the impact of a recession, most companies have responded by holding back on committing working capital to new inventory. Yet, a small number of companies are taking a different tack – attempting to corner the market for their materials. The outcome of a such a dynamic is clear: the rich get richer, and the poor get poorer.
To avoid such downward spirals and to better manage the vicissitudes of today’s supply chain challenges, organizations need better insight into what materials exist in the market, where those materials are in transit, and when they will reach their destination.
This is why interest in business networks is rising. When it is not practical to quickly shift to onshoring of production or maintaining risky and untenable buffer stock levels, brand owners can use business networks to keep inventory as low as possible, track it in real time, and ultimately exert greater control over manufacturing processes.
But control means planning – which is where SAP can help.
Resilient Planning and Fulfillment with SAP
SAP is now extending a packaged solution that connects you to millions of potential partners on our business network and gives you market-leading tools for business planning, supply chain orchestration, and global track and trace for better logistics visibility.
Components span the areas of planning and fulfilment. On the planning side we have:
SAP® Integrated Business Planning for Supply Chain applications
SAP Business Network Planning Collaboration
On the fulfillment side, we have:
SAP Business Network Supply Chain Collaboration
SAP Business Network Freight Collaboration
SAP Business Network Global Track and Trace
Together, these components support a process of iterative planning between supply chain parties with more than 30 demand and supply signals that can be exchanged in near real time. Now you can put away your spreadsheets and say goodbye to e-mail. New data and insights are shared in minutes. And with powerful monitoring and workbench capabilities, you can also manage by exception – freeing up employees on either side of the relationship to work more strategically.
If you need to scramble to find a new partner, SAP Business Network shows you more than 8 million potential options – with fast onboarding. You can share demand forecasts in real time and obtain forecast commits from your suppliers. This helps you understand constraints better, plan production with greater accuracy, and assure supply to avoid disruptions.
Throughout the process, nearly instantaneous data sharing and collaboration help you stay on top of the changing demand picture. When goods are shipped, you can see where they are in transit. The result is fewer surprises and plans that go, well, according to plan.
In times gone by, only the largest companies had the wherewithal to set up and maintain supply chain operations of such sophistication. Now, with the power of the network at your disposal, you can do the same.
All of which can help you leverage supply chain planning to its full, intended effect. Today’s supply chain challenges demand a resurgence in well-executed planning. With access to one of the largest business networks in the world, you can survive and thrive even in the face of disruption.