Supply chain recalibration
November 18, 2022
Supply chain management traditionally emphasizes cost efficiency, faster delivery, and quality. But the post-pandemic era has brought organizations’ focus to resiliency in order to recover from major disruptions such as COVID-19.
Organizations can mitigate the impact of supply chain disruptions by reengineering their internal systems and processes. Through these measures, enterprises can proactively recalibrate internal factors such as business models, IT applications, and workflow processes.
Supply chain resiliency measures can be taken at all stages of a product’s lifecycle, from design to end of life (see Figure 1).
Figure 1. Changes across a product’s lifecycle to enhance supply chain resiliency
The post-pandemic era is witnessing severe supply chain bottlenecks, leading to a shortage of critical parts and materials. In the initial stages of the product lifecycle, a “design for availability” approach can help manage supply issues for parts like semiconductor chips. Instead of waiting for the ideal part, the best and earliest possible alternative (in terms of functionality and cost) should be considered. Tesla followed this approach. Its modular vehicle architecture, where hardware and software were decoupled from each other, helped it rewrite software to match the chips available. Also, Volkswagen prioritized the chips available for use in its premium cars.
Organizations can switch from forecast-based, make-to-stock manufacturing to order-based, make-to-order manufacturing. It is not an easy change. Ford recently shifted its focus to this approach, helping it face the shortage of semiconductor chips. The finished goods inventory will be minimal in this way. However, the lead time for delivery of vehicles to customers will be much longer. Enterprise resource planning (ERP) systems need to transform to adapt to this change.
For parts bought from suppliers, one approach is to standardize processes and consolidate orders. Infosys has designed and implemented a standardized model and purchasing tool for a leading multinational elevator manufacturer and service provider. It standardized the requisitioning process across the countries in which the firm operates. E-Catalogs were introduced. Using these techniques, manufacturers can leverage consolidated volume requirements at pre-negotiated pricing, resulting in cost savings.
For critical in-house parts, manufacturers follow vertical integration. It helps them track and control the supply of critical components. Carmakers that are ramping up EV manufacturing have started vertical integration to make their own batteries and associated components. Ford is also considering shifting from purchasing batteries to making its own. Its upcoming BlueOval City factory will be vertically integrated for EV manufacture for cost efficiency and minimal carbon footprint.
The pandemic caused a choking of ports and a shortage of shipping containers. Amazon had started making its own shipping containers in 2018 and chartered its own ships to avoid supply chain bottlenecks. The move helped the retailer during the pandemic. Today, Amazon uses its own transportation network for 72% of its shipments. Amazon can decide which ports to visit and avoid those with a heavy backlog. While its competitors had to wait for months for their shipments to arrive, Amazon can fulfil supply within a few days.
Circular business models are expensive due to reverse logistics costs and the complexity of recycling. The collection systems will have to stretch over a vast distance between the point of use and remanufacturing. Because of parts specialization, it is difficult to gather sufficient volumes for recycling economically. Otherwise, it would require very deep stripping down to gather the base metals, rendering the process uneconomical. However, as additive manufacturing becomes more widely adopted, decentralized supply chains will become economical, local, and under the control of manufacturers.
For example, Siemens Energy has invested in additive manufacturing for its digital supply chain initiative. The goal is to reduce inventories while ensuring the speed of delivery of components, spare parts, and specialized tooling.
The uncertainty, complexity, and volatility of supply chains cannot be wished away. They are external to enterprises and beyond their circle of influence to control. However, business leaders can cushion the impact of supply chain disruptions to a good extent by reengineering their internal systems and processes and recalibrating key metrics and measurements.
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