Supply and Demand: Going Digital to Minimize Risks Volatility
News Gone are the days of delayed shipments and miscounted inventory. There are thousands of “what-if” questions for global companies to answer in order to build a sustainable, efficient, responsive supply chain.
Given the new global reality of sustained volatility, complexity and rapid change, businesses are looking for ways to evaluate supply chain risk and build response plans for potential disruptive events.
Recent, massive West Coast port shutdowns brought the reality of supply chain continuity planning to the forefront once again. Worker shortage and shipping delays throughout the country caused billions in lost or delayed revenue and massive backups and protracted lead times. Businesses that were armed with a continuously maintained digital model of the supply chain were able to react rapidly and intelligently to these unplanned events and test various alternatives responses, rather than guessing or delaying their response.
The contingency plan
Supply chain design technology can help businesses combat market risk and volatility in three ways:
- Visibility of the structure and flow of goods through the current supply chain to identify inefficiencies and potential risk
- What-if analysis to test alternate potential network configurations to reduce risk or increase resiliency to recover from a risk event
- Rapid response to unplanned events by identifying optimal responses rather than guessing or delaying response
Businesses are proactively preparing for potential supply chain events by building end-to-end models of their existing supply chains and then creating contingency plans by running various “what-if” scenarios associated with future disruptive events, such as port closures, to determine the best response.
This scenario analysis can be used to prepare for other potential supply chain disruptions resulting from an over-concentration of activity or reliance on a limited or single provider. Examples include supplier and production sole sourcing, using a handful of carriers or a single mode of transportation to transport goods or customer revenue concentrated in areas prone to significant weather events.
"Supply chain models can incorporate cloud-based industry-recognized risk metrics for different regions around the world; including political instability, logistics performance, corruption, climate risk and ease of doing business indices."
In the occurrence of unplanned supply chain events such as natural disasters, strikes or political upheaval, companies that have already built and maintain supply chain models can quickly respond by incorporating new scenarios to identify the best response plan for minimal disruption to operations and revenue, and then test these alternate response plans under detailed real-world conditions prior to execution to evaluate their performance and feasibility.
Many U.S.-based businesses are rethinking overseas manufacturing strategies, as formerly significant cost advantages begin to evaporate. Rising labor costs, turnover and quality concerns and lengthening of ocean transit times are contributing to increasing risk of manufacturing in Asia.
“Near-shoring” to North American countries such as Mexico appears favorable in many regards. Among the potential benefits are Mexico’s shorter lead time, favorable trade agreements with 44 countries and a long-established, growing manufacturing footprint.
In making fundamental facility location decisions, companies often fall into the trap of focusing only on a subset of the costs and forget to focus on entire end-to-end supply chain considerations, which include the interdependencies of many cost factors including transportation, inventory and tax. Modeling helps companies make decisions that are optimized across the entire supply chain by identifying the tradeoffs across all the different cost elements and service levels.
Supply chain models can incorporate cloud-based industry-recognized risk metrics for different regions around the world; including political instability, logistics performance, corruption, climate risk and ease of doing business indices.
By mitigating these risks with supply chain modeling, organizations are achieving thousands, if not millions in cost avoidance, receiving a significant return on investment and maintaining a stable supply chain strategy for future business efforts.