Supply chain strategy and decision-making involves balancing multiple competing priorities, from speed and cost to resilience and the use of AI. But even when the balance is right, it’s never right for long
Strategic decisions are the basis of supply chain management. From the fundamentals of where and how much to buy, to engagement with the latest technologies. CPOs and supply chain directors must decide their strategy based on all the factors affecting their particular business, as well as the value placed on often conflicting motivations such as budget, speed, ethics, efficiency, sustainability, flexibility and of course costs.
Achieving the perfect balance of all these variables is an eternal challenge, because even when the KPIs and profits are delivered, there is the ever-present danger that things will change. Markets shift, technologies develop and the unexpected is never far away.
The last year or two have been rife with examples of disruptions that have put supply chain decisions at the top of the boardroom agenda. An ideal supply chain strategy will have just enough flexibility to deal with a crisis and prevent catastrophe. Too much capacity is inefficient and inhibits agility, but too lean a supply chain risks being too brittle to adapt to sudden changes.
Historically for many businesses, resilience has been something of an afterthought. Emile Naus, partner at consultancy BearingPoint, says: “Supply chain strategy has had a focus on delivering costs reductions over the past 30 years. As a result, we have global supply chains with long lead times, high inventory (supported by very low interest rates) and low cost. But this has come at a significant ‘cost’ that is less visible than financial. Longer supply chains, with more elements in the chain, are fundamentally less flexible and less resilient.”
Supply chain transformation as a strategy
Less robust supply chains necessitate big decisions and fast changes when disruption hits. But the upheaval of entrenched practices can also be an opportunity for valuable long-term transformation.
“Supply chain strategy will need to take a much more balanced view around risk, flexibility, investment and costs,” says Naus. “Supply chain strategists will then need to understand where they can sensibly reduce the impact on the operating costs, which will accelerate the existing trends to automation…robotics and application of AI.”
Machine learning, artificial intelligence and the internet of things are perhaps opaque concepts. But they can help people and businesses use data to make better-informed decisions, elevating established supply chain processes like ERP, EAM, CRM, ITOM and HCM to the next level and beyond.
Chris Gabriel, CTO at business software consultancy Sapphire Systems, says: “We are seeing smart supply chains being able to monitor ships at sea or containers in a port and provide automated data inputs into forecasting or stock management. We are seeing algorithms able to predict how customers will pay. Of course, we are seeing the growth in machine learning and our ability to recognise and act on information in documents or other formats coupled with automated decision making to speed up flows across organisations.”
Taking a strategic leap of faith
The burning strategic decision for many is not whether to take the plunge into big data and AI but when, and to what extent. It’s an easy decision for market leaders to invest heavily in emerging tech, because they can absorb the costs and even view failures as valuable lessons. But the decision is harder for smaller operators.
Adopting new methods involves risk, and waiting for the best tech to be proven can be tempting. However, deferring these big decisions could mean being left behind. And although implementing complex new systems may seem prohibitively expensive, cloud computing is now offering modular and user-friendly options.
The cloud is making the latest tech accessible to all, but Gabriel adds that it still requires something of a strategic leap of faith, because cloud has to a certain extent rewritten the rules.
“Cloud said ‘don’t configure your business to the ERP system but use best practise in the cloud ERP system to reconfigure your business.’” And that came as a step too far for many…but the gains of moving from a system of record to a system of action are huge.”
The turbulence of the last 18 months has increased the value of resilience in supply chains, and the benefits of AI seem futile to resist. Among a sea of variables, it seems the one constant is change, which always comes with costs and risks. If change is inevitable, the ‘how’ and ‘when’ remain the decisions of the supply chain directors, and so the balancing act must continue.