The changing shape of supply chains

The term “supply chain management” was not in general use by the wider public before the Covid pandemic. If an individual said they worked in supply chain management, they would have had to explain what that meant.

Now, following the much-publicised shortage of personal protective equipment (PPE) throughout the pandemic, the cargo ship ‘Ever Given’ getting stuck in the Suez Canal in 2021 and the global shortages of semiconductor chips; most people understand what the term ‘supply chain’ means.

This blog discusses how industry shifts and world events have altered supply chains and the importance of building agility into operations to react quickly to unforeseen events.

Supercharging of automation and robots

The substantial financial stimuli provided by nations across the globe to keep the world from falling into recession certainly helped. However, it also changed the relationship between labour and capital. Consequently, workers now have more choices; meaning it is harder to find and retain workers. The result is that instead of being singularly focused on labour efficiencies, companies need to also consider morale. Couple this with the trend toward automation, which has never gone away, and you have a huge challenge in retaining workers at many factories and warehouses. The already fast-growing market for warehouse robots and flexible factory automation has become supercharged as a result.

‘Black swan’ events rarely happen, or do they?

Covid supply disruptions shone a light on the need for better supply chain risk management, which was a harder sell pre-pandemic. Many large organisations and multinationals knew that events could occur that could cost them tens, or hundreds of millions of Pounds, Dollars or Yen. But these events were not predictable. And, many events that could occur were so rare they were labelled “black swan events.” The result is that companies could not calculate a return on investment (ROI) for improving these capabilities. Thus, many companies did not invest in any sort of risk management technology. Organisations typically embrace improved supply chain risk management after a disaster. For example, the auto industry embraced risk management after the nuclear disaster in Fukushima, Japan. Covid was a ‘Fukushima-type’ event that applied to all industries.

But as companies embraced risk management solutions, they discovered that while some of these solutions were very good at identifying risks in real-time one tier up in the supply chain, they could not identify risks occurring several tiers up in the supply chain – also known as the “n-tier problem’, which is what Covid supply disruptions turned out to be. For example, the automotive industry, which lost billions because of the semiconductor chip shortage, had suppliers that could not get the chips they needed for their products. So, the Original Equipment Manufacturers (OEMs) could not get the subassemblies and car components they needed.

What are n-tier suppliers?

Suppliers that exist beyond your tier 1 (contracted) suppliers and form the network of companies that provide your tier 1 supplier with the goods or services they need to deliver their own goods or services to you. Because sub-tier organisations can be represented across many levels, sometimes very little is known about them, and risk exposure can be incredibly high.

The importance of supply chain agility

A company with an agile supply chain can react quickly to big increases or decreases in demand. It can also see a supply or logistics disruption that could negatively impact its business faster than its competition. This advanced visibility can allow them to move to lock in the items in short supply, or the needed transport, faster than their competitors.

Covid was a giant shock to the supply chain profession. Many supply chain professionals worked long hours under huge stress. Their performance was arguably outstanding amid a global crisis. The crisis also helped companies identify talented supply chain employees, advancing many careers. Other young supply chain analysts and planners learned things in a few months that would have taken years to learn in the past.

In summary, supply chain management as a profession will never be the same.

Check out our guide ‘Solving supply chain woes‘ to discover the role of ERP in a changing supply chain management environment.

2023-10-13T12:05:07+00:00February 1, 2023|Blog|
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