The supply chain is the heart of many enterprises. As much of the world faces an economic recession, companies must make their supply chains more resilient.
Our supply chains are highly responsive, thanks to the adoption of just-in-time practices. But that is problematic when companies are confronted by transportation restrictions, as they recently have been. A survey by the Institute for Supply Management finds that nearly three-quarters of respondents have recently experienced supply chain disruptions for this reason.
Also, as a result of today’s supply chain bind, it’s likely that corporate boards, shareholders and even government regulators will soon begin to demand supply chain plans that are far more robust. They’ll put companies under pressure to explain how, given a wide range of possible scenarios, they’ll be able to continue operating.
5 action items for tomorrow’s supply chain
What actions should companies take now that will have a positive impact on their supply chain operations? We see five main areas for improvement:
- Cash war chest: New policies on cash versus inventory can certainly impact supply chain operations. Before you make any decisions, you should perform cash modeling. Calculate your organization’s likely cash inflows and outflows. Explore the sale of nonperforming brands and adjust safety stock levels as a way to both accumulate cash and minimize losses. Additionally, take advantage of currently low interest rates to either refinance or pay off debt.
- M&A: Conduct “what if?” scenarios to consider acquiring non-thriving competitors. If you do pursue a deal, make sure it’s congruent with the rest of the supply chain. Does it add to your capabilities? Or is it a new area?
- Logistics: Improve your planning systems. A downturn is the right time to do this. Because once business improves, you’ll likely be scrambling just to keep pace. Consider an upgrade to your enterprise resource planning (ERP) system, such as moving to SAP S/4 HANA, which has functions that support supply chain innovation with analytics, financial simulation, business planning, transportation management and logistics.
- Automation: Which of your routine processes could be handled by robots, internet of things (IoT) devices, machine learning or process scripting? These technologies, once seen as emerging, are now ready for everyday use.
- Simulation planning: Simulate likely scenarios to do demand-driven (vs. forecast-driven) material requirements planning (MRP), then design a response. Your goal: Determine the optimal inventory safety stocks needed to balance what you can produce with what customers demand. For example, if you have suppliers in California, you might simulate a damaging wildfire scenario of the kind the state has suffered in recent years.
It all amounts to this: Be a supply chain warrior now, and your company will be prepared for a future crisis.