Healing the Broken Supply Chain

Supply Chain leadership envisions optimizing three primary flows: the flow of goods (or services), the flow of cash and the flow of information between multiple producing, storage, delivery, and consuming partners. To make the best supply chain decisions in uncertain environments, managers need access to real-time information. Limitations of legacy technologies thwarts the goal of end-to-end transparency and rapid response decision making. In the modern digital revolution, clients can now capture, analyze, integrate, and interpret high quality, real-time data — data that fuels learning systems for process automation and predictive analytics, resulting in strategic advantage.

The Cost / Responsiveness Curve

Uncertainty is a primary culprit for supply chain costs. Disconnected information flows between supply chain parties causes increased uncertainty which in turn causes inefficiencies along the supply chain. Supply disruption risks cause lost sales and increased costs for expediting and overtime, thereby hurting margins. Business leaders are expected to manage the increasing litany of risks commonly affecting supply chain reliability.

On the demand side of the equation, companies are faced with meeting increasingly shorter lead times with higher expected customer service levels, responding to wide ranges in demand, while building innovative and frequently changing products. The need for responsive supply chains has never been greater, however increased responsiveness comes at a cost, which can be exponential with decreasing returns at increasingly higher costs.

The Cost of Uncertainty

Some of the most common (and most expensive) solutions to improve supply chain reliability include production capacity solutions, inventory solutions, time solutions, and pricing solutions. Building excess capacity results in high capital and overhead costs. Holding excess inventory in multiple locations along the supply chain increases inventory carrying costs which are passed along in price increases if possible, or decreased margins if not possible. Time solutions include expedited freight (supply side response) or delayed order fulfillment (demand side response). Discounting prices to compensate for poor customer service, or to deal with supply chain surpluses and shortfalls results in decreased revenues. Among these four common solutions, price and time solutions tend to be the easiest and quickest responses, which is why they are most often employed in emergency situations. Inventory and production capacity solutions take longer to implement because they require investments in facilities, equipment, and inventories along the supply chain.  

The Information Solution

There is an increasingly important, and often overlooked, solution to supply chain uncertainty –increasing the availability of the right information, at the right time to the right decision makers to decrease supply and demand uncertainty. Uncertainty is nothing more than the absence of correct information. Improved communications and planning between supply chain parties results in strategic relationships and strategic advantages. Executing technology solutions to improve supply chain information sharing is sometimes viewed as expensive, however it is rarely more expensive than investments in facilities and equipment, nor as expensive as habitually discounting obsolete inventory (price solution) or perpetual freight expediting (time solution). Best of all, information solutions flatten the responsiveness cost curve, providing the capability to reduce supply chain costs.

How could your company benefit if presently disjointed internal functions and your supply chain partners shared connected, real-time information? What if your team had data driven, scenario analysis tools to make rapid responses that provide optimum outcomes? What if the supply chain drivers that most affect your business performance were translated into metrics for operations and supply chain accountability?

Let’s Connect

I enjoy making new connections. I am a management consultant with USC Consulting which has helped hundreds of companies for over 50 years to improve operating performance. To see how the USC Consulting group can help your company improve supply chain performance, feel free to reach out to me directly on LinkedIn or visit our website at: https://www.usccg.com/

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