A blog discussing how to improve visibility for supply chain re-engineering
There have been some big and important events happening, like the pandemic, lack of workers, and fighting between Russia and Ukraine. These things have shown us that the way we get things from all around the world is not very strong. We used to think that these things were rare and unexpected, but we now know that they can happen anytime. We have learned that when there are problems with getting natural resources, politics or other things happening around the world, it can make things more expensive and slower.
At ICSC we’re completing our latest cross-industry population study to examine changing business practices. One of the most significant highlights — which echoes our prior research — is the need to rethink supply chains from a one up / one down model (i.e., who we sell to, who we buy from), to modeling the entire supply chain.
In 2023, executives across industries are coming to terms with the prospect their business may find itself in chaos from any supply chain challenge, from raw materials to order fulfillment. Automotive manufacturers experienced an outsized disruption when semiconductors became scarce during the pandemic. Early predictions expected the shortage to cost the global auto industry $210 billion in revenue in 2021, according to consulting firm AlixPartners. It ended up costing much, much more and will reshape entire industries.
A recent survey of procurement executives from manufacturing companies across the US and the UK points to shared troubles: 97% are experiencing “significant disruption” in their direct materials supply chain, with 84% noting “modernizing supply chain processes” is a strategic priority. Most leaders also said they are not confident their existing technology can handle today’s supply chain challenges.
The role of nations in supply chains
Economic and digital control extends to different parts of the supply chain, and issues can arise at any point along the way. For example, a study in May 2022 used VAT records to map Hungary’s economic risks and found that the country’s supply chain is vulnerable at a very detailed level. With 91,000 companies in the country, 75% of national production is connected to just 100 companies.
Each company cannot be seen as independent in such a market. Yet some possess an outsized risk to entire economies and as such represent an outsized potential for domino effects on the country’s supply chain. The other 90,900 are of marginal systemic relevance. This data point hid in plain sight.
A second example provides additional clarity: Sri Lanka discovered that losing control of parts of the supply chain (in this case caused by policy decisions on existing use and taxation) brought the nation to collapse, as it caused critical national infrastructure to fail.
My colleague Michelle likens supply chains to the murky world of collateralized debt obligations (CDOs). We have built wonderful edifices to commerce on top of things we understand little about. Consider this: industrial giants are cutting ammonia production (an essential ingredient in synthetic fertilizers) due to the energy supply crunch created by Russia. A knock-on effect finds the UK — where the use of synthetic fertilizers is essential — is a few supply chain hops away from having to spend decades rebuilding the microbiological structure of its soil.
Building supply chain knowledge
Companies and countries alike need to examine the mission criticality of supply chains critical to their organizations, and to their national infrastructure and security. To that end, they need to investigate the technologies transforming this effort.
That includes open data sets, advanced machine learning and predictive analytics, data meshes, digital twins and model-based systems engineering, control towers piecing together the extended supply chain, and procurement resilience applications wrapping around ERP, PLM and MES Control systems.
At ICSC, we assist companies in bringing continuous innovation to their supply chain technologies. This leads to greater flexibility and resilience through updated applications and data, leading to better collaboration with software vendors. By leveraging our expertise in data and applied intelligence, and integrating process intelligence into applications, we were able to generate cost savings for one CPG customer’s overall supply chain expenditure.
As strategic enablers for their organizations, CIOs and CTOs must provide data scientists with the tools to inform supply chain decisions made by COOs and CFOs.
For some organizations, technical modernization results in improved accessibility and data, which leads to more strategic decision-making. However, other organizations may have more work to do and must prioritize their technical debt based on the impact of external events.
To re-engineer supply chains for better risk assessments, informed sourcing decisions, and increased flexibility, we require greater visibility. The added benefits of sustainability are an added bonus, as having access to supply chain data from concept to completion to reclamation will enable smarter resource deployment, promoting circularity to safeguard our vulnerable planet and its inhabitants.
Michelle will give us important information about how different industries are dealing with supply chain issues, the things they’re investigating, and where there may be problems. She’ll use detailed Wardley Maps to show us these insights, and we can’t wait to share this upcoming research with you. It will help us understand how supply chains affect the way businesses work together.