Running the Knife’s Edge of Supply Chain Resilience and Profit

Running the Knife's Edge of Supply Chain Resilience and Profit

After years of relative stability in global supply chains, the last two years have brought anything but.  Labor shortages, raw material issues, and general uncertainty have wreaked havoc on suppliers and customers alike, bringing a new focus on supply chain resilience.  How we came to this point is as complex as the global supply chain (that’s part of the problem), but here we will discuss ways to create a more resilient business model.

The relative stability of the previous years brought a focus on profit maximization.  When things are going well, managers look for ways to make things less costly and more profitable.  If this goes on long enough, managers start looking at things like inventory reduction to reduce tied up capital, the workforce tightens in areas like production planning or other support areas.  Sales teams rationalize less profitable (and less demanding) customers, focusing on more profitable and demanding customers.  Business managers begin looking at higher value specialty supply streams and ever more time and labor demanding products.  Over time, this adds more and more layers of complexity (and products), which can shock the supply chain system for a few days, weeks, or months, bringing the team to their knees. Practices that encourage supply resilience can help with this.

Supply chain resilience helps prevent future uncertainty

This procession of continuous improvement and increased complexity will always happen if the landscape is stable enough.  However, there are things which can be done to build supply chain resilience and mitigate future pain even in times of plenty, and even more that can be done to patch the boat once the water starts rushing in.

Some of the more obvious strategies to reducing complexity are increasing weeks-on-hand inventory, SKU rationalization to higher volume and less complex products and brands, increasing support staff and planners, and decreasing those higher margin sales made to the most demanding customers.  In hindsight these strategies may seem obvious, but they are often the last thing anyone wants to do during times of stability.  Thus, far too often, companies hold on until their teams are at the breaking point.  However, there are other ways to mitigate some of these more drastic measures.

Practice radical visibility for stronger supply chain resilience

In our experience, all too often the same team members the company leans on to deal with major shocks are struggling to do so because they don’t have the tools to allow them to make major changes to the plans quickly.  During times of upheaval, the most important thing you can have is extreme visibility. If you are trying to plan and replan multiple times each day using Excel spreadsheets or another clunky system you are just sinking deeper as the water fills the boat.  

Supply chain resilience often equals the ability to make needed changes quickly and optimally.  That happens by having the ability to make a plan that can be modified in minutes, not hours or days.  For instance, if you must change the supply you are receiving next week, the next step is reallocating the supply you now plan to receive in the most optimal way.  This leads to hours and hours of planning, and replanning again once you tell the operations team and they say the plan can’t be achieved because they don’t have the resources…this can continue for hours, if not days, in many companies.  Next is the misery of hours of telling sales forces they have to call customers and cancel, which normally turns into more hours of debating with them about who else should be shorted (anyone but their customers), their bosses, then executives, etc. It’s a testament to these teams that they can get through these times.

Much can be eliminated from this process if planning can be achieved with a simple change to the supply plan and the planning is completed in minutes with the help of an optimization built around the company’s current capacity constraints.  A properly configured optimization facilitates quick changes to such capacity constraints and allows for modification of the supply plan (or demand plans), not just at the highest level (like number of head or volume of milk) but also at lower levels.  For instance, if you can no longer fabricate 75% of your hams into boneless hams because you don’t have the labor, you can lower the percent of supply allocated to ham fabrication and increase the bone-in ham supply allocation. The system then recalculates based on the new supply and tells you what you have left to sell or what is short based on the new plan.

This process is more transformational than you may first realize.  First, speed is critical when things go wrong.  The longer it takes to replan the more everyone’s nerves fray waiting for the hammer to fall, which often is often a big part of the cascade of frustration mentioned above.  Second, the faster replanning occurs the less product is getting made today that you may need in a different form post replanning.  Finally, the business rules are agreed upon company rules which reduces time spent on repeating expectations and explanations.  This company wide consensus of the current landscape creates trust and from trust comes speed as well as a massive reduction in wasted time and internal team friction at the exact moments there is no time to waste.

Supply chain resilience makes you faster than your competition

Speeding this process allows your team to manage the real, wider issues instead of just feeling demoralized and like they are bailing water from a sinking boat.  Optimizing this process in minutes assures you have the best plan possible, and you have it faster than your competition.  Now you get a head start selling different products required by the new plan, if you had to switch to something you were not selling before, which will get you better prices than competition who probably are needing to do the same thing.  It may also keep your best and brightest from frustration and failure, and for any management team, that’s extremely important.

Is your supply chain struggling to reach optimal resilience? We can help.