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Future-proofing the supply chain

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Future-proofing the supply chain

Future-proofing the supply chain

Supply chains matter. The plumbing of global commerce has rarely been a topic of much discussion in newsrooms or boardrooms, but the past two years have pushed the subject to the top of the agenda. The COVID-19 crisis, postpandemic economic effects, and the ongoing conflict in Ukraine have exposed the vulnerabilities of today’s global supply chains. They have also made heroes of the teams that keep products flowing in a complex, uncertain, and fast-changing environment. Supply chain leaders now find themselves in an unfamiliar position: they have the attention of top management and a mandate to make real change.

Forward-thinking chief supply chain officers (CSCOs) now have a once-in-a-generation opportunity to future-proof their supply chains. And they can do that by recognizing the three new priorities alongside the function’s traditional objectives of cost/capital, quality, and service and redesigning their supply chains accordingly.

The first of these new priorities, resilience, addresses the challenges that have made supply chain a widespread topic of conversation. The second, agility, will equip companies with the ability to meet rapidly evolving, and increasingly volatile, customer and consumer needs. The third, sustainability, recognizes the key role that supply chains will play in the transition to a clean and socially just economy.

Boosting supply chain resilience

Supply chains have always been vulnerable to disruption. Prepandemic research by the McKinsey Global Institute found that, on average, companies experience a disruption of one to two months in duration every 3.7 years. In the consumer goods sector, for example, the financial fallout of these disruptions over a decade is likely to equal 30 percent of one year’s EBITDA.

Historical data also show that these costs are not inevitable. In 2011, Toyota suffered six months of reduced production following the devastating Tohoku earthquake and tsunami. But the carmaker revamped its production strategy, regionalized supply chains, and addressed supplier vulnerabilities. When another major earthquake hit Japan in April 2016, Toyota was able to resume production after only two weeks.

During the pandemic’s early stages, sportswear maker Nike accelerated a supply chain technology program that used radio frequency identification (RFID) technology to track products flowing through outsourced manufacturing operations. The company also used predictive-demand analytics to minimize the impact of store closures across China. By rerouting inventory from in-store to digital-sales channels and acting early to minimize excess inventory buildup across its network, the company was able to limit sales declines in the region to just 5 percent. Over the same period, major competitors suffered much more significant drops in sales.

Supply chain risk manifests at the intersection of vulnerability and exposure to unforeseen events (Exhibit 2). The first step in mitigating that risk is a clear understanding of the organization’s supply chain vulnerabilities. Which suppliers, processes, or facilities present potential single points of failure in the supply chain? Which critical inputs are at risk from shortages or price volatility?

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The Emerging Business of Supply Chain Risk Management

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For many organizations, globalization, outsourcing, and extended supply chains are effective strategies to increase efficiency and achieve economies of scale, however, these benefits are accompanied by the significantly increased risk to quality, safety, business continuity, reputation, and more.

Is Your Company Safe to Work With?

As reported by Forbes, there’s an emerging category of business – supply chain risk management – of which many companies aren’t yet aware.

For the largest companies, this is a jugular area – imagine the exposure of a large oil company or a large online retailer when a supplier they’ve contracted with makes a mistake or even causes an all-out disaster? (Think oil drilling contractor, for example.)

Risk Management Overview

For many organizations, globalization, outsourcing, and extended supply chains are effective strategies to increase efficiency and achieve economies of scale.

However, these benefits are accompanied by the significantly increased risk of quality, safety, business continuity, reputation, and more.

Identifying Risk in the Supply Chain

Organizations are always at risk for losses through cost volatility, supply disruption, non-compliance fines, and safety incidents that cause damage to their brand and reputation.

Knowing what’s at stake is the first step to understanding, measuring, and managing risk in your supply chain.

Supply Chain Safety

Among the highest priorities for companies across all industries, safety concerns are often magnified in chemical, oil and gas, construction, and manufacturing.

Workplace accidents can jeopardize contracts, result in fines, and cause significant damage to a company’s reputation.

Supply Chain Quality Control

Do your vendors and suppliers meet your standards for quality and consistency?

Customers are quick to react when they perceive a drop in quality; and, even the smallest product issues can be difficult to recover from.

Supply Chain Financial Challenges

Any disruption to the supply chain due to financial challenges has the potential to impact business continuity and, ultimately, your bottom line.

Taking a proactive approach to understanding supplier financial strength can prevent disruption and unnecessary costs.

Supply Chain Compliance

Are your contractors insured? Do they have the right type of insurance, the right limits?

Knowing this information will help you to manage insurance risk and avoid potentially costly litigation.

Supply Chain Reputation

Damage to a company’s brand or reputation can be long-lasting, extremely costly, and sometimes unrecoverable.

Committing to a supply chain risk management strategy can not only prevent brand damage but can also serve to foster new partnerships with organizations that share like values.

Supply Chain Sustainability

It’s no longer enough to assess risk within the traditional construct of a supply chain.

Organizations must look beyond and consider environmental impacts and corporate social responsibility, including adherence to labor laws and sustainable practices.

Read more at The Emerging Business of Supply Chain Risk Management

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ONE Blockchain Platform to Provide Enhanced Transparency and Security for Supply Chains

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One Network Enterprises, the global provider of a multi-party digital network platform, today announced a new, flexible and cross-industry Chain-of-Custody solution built on its Real Time Value Network (RTVN).

By providing serialization and tracking across complex supply chains that involve multiple parties and hand-offs, this latest offering leverages the powerful capabilities of Blockchain to help mitigate threats such as product diversion, counterfeiting, grey market distribution, spoilage, substandard products, and unauthorized introductions.

“The global implications of substandard, falsified, and counterfeit and substandard products are huge,” said Ranjit Notani, CTO of One Network.

“While some of the compromises in traditional Blockchain solutions must make the difficult choice between confidentiality, single-version-of-the-truth, and a lack of scalability, ONE Blockchain is fully integrated into One Network’s global fulfillment backbone offering a completely secure application with fine-grained confidentiality at all levels, while maintaining a single, trusted record for every transaction without requiring any expensive integration into supply chain operations.”

The new Chain-of-Custody solution was developed to deal with the realities of today’s supply chains where end-to-end serialization – from raw materials to consumers and beyond – is not an all or nothing proposition.

Accordingly, the solution is designed to increase the lengths of chain-of-custody segments until the segments merge to form a full end-to-end secure chain.

The Chain-of-Custody solution supports serial tracking, lot tracking, hybrid tracking, lot splitting, tracking through consolidation and deconsolidation, tracking through blending and discrete mixing, hierarchical IoT operations, partial chains-of-custody, and targeted recalls.

Read more at ONE Blockchain Platform to Provide Enhanced Transparency and Security for Supply Chains

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All in with online, can J.C. Penney get up to digital speed?

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I had a few occasions chatting with the IT people of the company in the past few years. They were reluctant to adapt to the on-line trend of the retail market. One year, they wanted to expand their on-line catalog business; the next year, they closed the on-line catalog business and moves the majority of their IT people overseas in the following years. This time, it appears that the new SVP, Mike Amend, hired from Home Depot, is ready to face the on-line retail business challenges.

This article highlights a lot of positive actions for the company to transition itself from a traditional retail business to an on-line one.

  1. Recognizing its market strength: Research from comScore tells Penney that its customers have household incomes of $60,000 to $90,000, and they tend to be hardworking, two-income families living both in rural and urban settings. They don’t have the discretionary income to commit to membership fees.
  2. Last month, Penney added the ability to ship from all its stores, which immediately made about $1 billion of store inventory available to online customers and cut the distance between customer and delivery.
  3. About 80 percent of a store’s existing inventory is eligible for free same-day pickup.
    Last week, it offered free shipping to stores with no minimum purchase. Large items like refrigerators and trampolines are excluded.
  4. JCPenney.com now stocks four times the assortment found in its largest store by partnering with other brands and manufacturers.
  5. More than 50 percent of its online assortment is drop-shipped by suppliers and doesn’t go through Penney’s distribution. Categories added range from bathroom and kitchen hardware to sporting goods, pets and toys
  6. JCPenney.com now has one Web experience regardless of the screen: phone, tablet or desktop.
  7. Its new mobile app and wallet include Penney’s new upgraded Rewards program. Customers can book salon appointments on it. The in-store mode has a price-check scanner.
  8. Penney set out to “democratize access to the data,” so that not only the technical staff could understand it, now dashboards and heat maps allow the artful side of the business — the merchants — to measure such things as sales to in-stock levels or pricing to customer behavior.

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External Insights Critical to Effective Supply Chain Performance

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Traditional forecasting models that leverage historical data to predict future performance are the tools used by most supply chain executives to plan critical functions, yet these predictions are frequently inaccurate. In fact, research from KPMG International, in cooperation with the Economist Intelligence Unit, shows that most quarterly forecasts are off by 13 percent—meaning that supply chain managers are basing their decisions for ordering materials and scheduling distribution on erroneous projections. The result can mean surpluses or shortages, potentially costing companies millions either way.

There is a better way to anticipate supply chain demands—one that can vastly improve projections, and decrease the discrepancies between forecasting and reality, therefore helping supply chain executives perform their jobs more effectively. Few companies take into account macroeconomic factors, global manufacturing activity, consumer behavior, online traffic, weather data, etc. when making business projections. Yet companies that do identify leading performance indicators using such external data earn more than a 5 percent higher return on equity than those that use only internal metrics. Leveraging external factors, in addition to internal performance measures, is proven to result in more accurate, effective forecasts. Not to mention that improving forecast accuracy can represent huge bottom-line benefits. For a billion dollar manufacturing company, for example, improving forecast accuracy and overall return on equity even 1 percent can equal a $3 million increase in net income.

Forecasting accuracy, improved through external factors, benefits multiple business functions—from financial operations (shareholder value) to human resources (adequate staffing) to marketing (product innovation)—but is especially impactful on the supply chain management function.

Improves Inventory Management

Improved forecast accuracy using external drivers equates to reduced inventory management costs, ultimately improving bottom-line profit. By accounting for external factors, companies can see a 10 to 15 percent improvement in forecast accuracy, significantly decreasing the cost of excess inventory. By ordering raw materials based on correct projections, supply chain managers no longer have to worry about discounts necessary to move excess inventory or the cost of warehousing excess materials because they are ordering accurately from the start.

Read more at External Insights Critical to Effective Supply Chain Performance

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