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A combination of fiercely competitive global markets, ever-changing and evolving consumer demands, and disruptive geopolitical events means that organizations cannot rely on statistical forecasting models to operate efficient supply chains.
Risk mitigation strategies designed to prevent stock-outs and manage the surges and dips in demand are useful, but they don’t enable agility or demand-responsiveness. Similarly, developing business continuity plans with critical suppliers is an important part of supply chain management, but it won’t protect a business from truly unpredictable events, as recently evidenced by the COVID-19 pandemic.
Supply chain managers are increasingly realizing that their existing processes aren’t enough to shield them from the sheer disruption caused by unpredictable global events. Instead, organizations must redesign their supply chain to be more responsive to cater to their customers’ needs in real-time.
Not only will this approach better protect a supply chain from demand fluctuations and unpredictable events, but the end-customer benefits from more personalized service, rather than a mass-produced product. Essentially, it’s a win-win.
Here are five ways to develop a more responsive, proactive supply chain.
1. Embrace Flexible Contracting
Flexible supplier contracting enables an organization to increase or decrease production as customer demand fluctuates.
This type of contract typically specifies the range of output an organization will require from their supplier and the amount of time that would be allocated to them to amend their production levels almost like a notice period. Contracts with clauses of this kind require suppliers to plan for multiple demand scenarios.
2. Employ Range Forecasting
Range forecasting is an effective way for organizations to ready their supply chain for future, unknown events. This method sees an organization outlining a range of possible future demand outcomes, which allows supply chain managers to better implement contingency plans and develop more accurate contracting terms with their suppliers. As well as helping a supply chain prepare for variations in supply and demand, it can also be applied in the context of product pricing.
3. Multi-sourcing
The coronavirus pandemic has brought to light the enormous risk of relying on a single-source supplier. If a critical supplier can no longer meet requirements due to factory closures, increased demand, bankruptcy, or shipping and border delays, an entire supply chain can be impacted.
To avoid the resulting production delays and supply chain bottlenecks, organizations must ensure they do not depend on one supplier for crucial product components. Multi-sourcing — otherwise known as supply chain diversification — involves procuring a material, part, or product from several different suppliers, which means organizations can split demand across multiple vendors to alleviate pressure and reduce risk.
4. Evaluate Company Culture
Company culture is cited as the number one driver of a more responsive supply chain. Better collaboration, which includes the sharing of data, equips supply chain leaders with the intelligence necessary to predict future demand.
Research has found that organizations with multiple reporting channels and decision-makers struggle to effectively share information. Supply chain leaders must have the authority to own decision-making across all locations and throughout the entire supply chain, embracing a “plan centrally and execute locally” model.
5. Invest in Technology That Enables a Responsive Supply Chain
Sophisticated modern supply chain technologies enable a more flexible approach to supply chain management. Service Oriented Architectures (SOA), a targeted, “pluggable architecture,” has spawned an uptick in technology vendors developing niche, tailored supply chain solutions. Real-time visibility and radical transparency are now possible with the assistance of AI, IoT, advanced analytics, and blockchain.
Looking ahead, supply chains will continue to evolve to be more responsive and deliver better personalization to their customers through short-run and micro-scale productions.
Image Credit: Wright Studio/Shutterstock.com
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