By: George Mathew
Key Takeaways
- Digital Transformation: Implementing advanced technologies and automation in supply chain management is crucial for enhancing efficiency and reducing operational costs.
- Strategic Inventory Management: Transitioning to digital inventory systems provides real-time oversight and accuracy, enabling better decision-making and optimization of workflows.
- Flexibility and Resilience: Diversifying suppliers and embracing distributed sourcing reduce reliance on single sources, mitigating the impact of disruptions.
- Enhanced Visibility: Utilizing IoT and blockchain technologies improves supply chain visibility, fostering transparency and enabling swift responses to challenges.
In the past few years, a series of emerging challenges in the supply chain, along with the widespread influence of inflation, has captured the focus of management in the domains of procurement and supply chain. The management of inventory, along with ongoing financial worries arising from rising costs across supply chains, ranging from production to procurement, has had a notable effect on the overall supply chain system. This highlights the importance of adopting impactful strategies and sustainable practices throughout the entire supply chain network.
Deploying advanced supply chain management software and technologies, as well as automating back-office workflows and functions, enables smooth communication and furnishes real-time data. This empowers informed decision-making during periods of supply chain pressures.
Effective strategies for building a robust supply chain: Supply chain resilience
Strategic inventory management
The transition from paper-based inventory systems to digital platforms offers procurement professionals real-time oversight, accuracy, and efficiency. With automated processes and advanced technologies, such as procure-to-pay software, digital systems minimize errors, streamline tasks, and reduce operational costs. Procurement teams can make informed decisions based on up-to-date data, optimize workflows, and adapt to changing business needs more effectively. The enhanced visibility into supply chain dynamics and integrated reporting features further contribute to strategic inventory management and improved overall procurement processes.
Flexibility in vendor selection
Digital solutions empower procurement professionals by providing a platform for diverse vendor choices, fostering healthy competition, enhancing transparency, and optimizing the overall procurement process. This shift represents a significant departure from the limitations imposed by traditional procurement methods, unlocking new possibilities for businesses to create value and achieve cost efficiencies in their supply chain management.
Centralized invoicing with automation
Implementing a centralized invoicing system through P2P automation to streamline the invoicing process, eliminate errors, and reduce the likelihood of fraud. Automation can also help in enforcing compliance with internal policies and external regulations, ensuring that all invoices meet the required standards.
Supervision and reporting of financial activities
Integrating robust financial data management and responsive reporting into supply chain processes minimizes wasteful spending, reduces errors, and fortifies the bottom line, particularly in times of supply chain pressures. These strategies contribute to a more resilient and adaptive supply chain aligned with financial objectives, providing real-time insights for swift decision-making, optimizing procurement, and mitigating financial risks. Ultimately, this integration fosters continuous improvement and ensures competitiveness in dynamic market conditions.
Rigorous adherence to contractual obligations
Constructing a resilient supply chain necessitates the integration of efficient procurement strategies, with digital solutions plays a crucial role in ensuring proper procurement procedures. A significant element involves monitoring contract compliance, where the automation system validates that procured goods and supplies conform to agreed-upon prices. This requires continuous scrutiny of discounts to ensure precise ordering and pricing, mitigating discrepancies that may result in financial inefficiencies. Through the digitization of these processes, organizations can improve accuracy, streamline procurement workflows, and uphold compliance with contractual agreements, ultimately bolstering the resilience and efficiency of the entire supply chain.
Here are five of the most common supply chain issues and how to address them
Shortage in material:
Critical material shortages are currently one of the most significant challenges for organisations supply chains. Shutdowns in factories during the pandemic and major shifts in demand have caused extensive backlogs and delays in the production of many parts and products. As a result, the lead times for certain components have increased from 14 to 40 weeks, as manufacturers face difficulties in recovering from these delays. For instance, semiconductors are a prime example of this situation. Before the pandemic, most semiconductor manufacturing was concentrated in East Asia, so shutdowns due to increasing demand for electronics caused significant disruptions. Although more factories are being built, the solutions are progressing too slowly to provide immediate relief. Embracing distributed sourcing and reshoring is one of the most crucial steps to mitigate this challenge. By reducing reliance on single sources for critical components and being closer to key suppliers, organizations can minimize the impact of similar events in the future. In the short term, organizations can increase their orders to build up safety stocks. It is also important to collaborate closely with distributors to reduce shipping times and explore opportunities to purchase excess inventory from other companies.
Lack of labor
A large number of supply chains are also dealing with a lack of available workers. Almost 75% of light industrial businesses are finding it challenging to attract employees currently, and 70% anticipate that these difficulties will continue. The workforce shortage is partly due to a shift in the available labor pool. Many warehouse workers are approaching retirement age, but fewer younger workers are interested in entering the industry. Turnover rates have reached 49% due to various factors, including increasing workplace stress and appealing job opportunities in other sectors that are contributing to this trend. The most crucial step in improving recruitment and retention is to create workplaces that are more stimulating and fulfilling. This may involve raising wages, providing more attractive benefits, offering flexible scheduling, creating opportunities for career development, and enhancing workplace safety. Enhancing efficiency in the workplace can also help counteract the effects of labor shortages. Streamlining physical workflows with robotics and automating back-office tasks with artificial intelligence (AI) will lessen the burden on human workers, enabling warehouses to handle larger volumes in less time despite having fewer employees.
Visibility limitation
Visibility challenges pose a common source of stress in the supply chain. Many organizations fail to maintain open relationships with suppliers, 3PLs, or other supply chain partners, which can make it challenging to identify and address potential disruptions. Only 21% of organizations currently claim to have a clear view of their supplier networks. Businesses are often unaware of the whereabouts of their shipments or the challenges their partners are facing until these issues directly impact them. Improving visibility will lead to quicker responses and, consequently, enhanced resiliency. Technology plays a vital role in enhancing supply chain visibility. Internet of Things (IoT) tracking solutions provide real-time data on shipment location, quality, and other variables to all relevant stakeholders. Likewise, blockchain solutions can offer immutable records of each location scan and transaction to promote transparency. Organizations must prioritize transparency in their operations to reasonably expect it from their supply chain partners. Collaborating to consolidate each party’s information will assist stakeholders in optimizing their role in the supply chain.
International Tensions
The escalation of geopolitical tensions also presents a difficulty for global supply chains. The competition in manufacturing and increasing doubts about fair labor practices have endangered supply chains that heavily rely on China. Additionally, the conflict between Russia and Ukraine has created challenges in sourcing from these countries. As a result, the supply of essential electronic components has significantly decreased due to the ongoing conflict. These challenges highlight the intricacies of international supply chains. Supply chains need to enhance their transparency in the face of escalating tensions. Utilizing IoT and blockchain solutions to offer greater sourcing traceability will enable companies to comprehend their connections and impact. This, in turn, will allow them to identify necessary adjustments if new restrictions or conflicts emerge. Implementing distributed sourcing and reshoring will also be beneficial. Diversifying sources across multiple countries, especially closer to home, will reduce reliance on single sources that are more susceptible to disruptions caused by geopolitical tensions.
Inflated operating costs
In the meantime, as these other pressures on the supply chain persist, related expenses are also increasing. Prices for materials continue to be high due to ongoing shortages, congestion is leading to higher freight rates, and labor difficulties could result in increased workforce costs. While some costs are decreasing, such as global shipping rates approaching their pre-pandemic levels, supply chains still need to prepare for potential disruptions. Other factors could still drive up material or labor expenses, and cutting costs will help in a quicker recovery regardless of further challenges. Embracing digitalization is a crucial move in reducing operational expenses. Reviewing supplier and 3PL partnerships may also uncover opportunities for savings. In many instances, collaborating with partners who prioritize digital solutions will result in more cost-effective supply chains compared to traditional processes.
How does a resilient supply chain work
A resilient supply chain functions by optimizing production through strategic supply chain planning, which is vital for achieving resilience. This process aligns all supply chain components, enhancing visibility and agility. By comprehensively understanding supply and demand requirements, businesses can harmonize production. This integrated, forward-looking strategy enables companies to better anticipate issues, mitigate the impact of disruptions, and improve overall operations. Resilient supply chains leverage data effectively. When businesses implement digital systems to analyze and interpret Big Data, they significantly boost supply chain resilience. AI-powered systems can consolidate disparate data sets from various sources, including news, competitor activities, sales reports, and customer feedback. By analyzing this data, businesses can identify trends and opportunities. Connected devices within the system provide real-time insights, enabling automation and optimization of workflows. Digital technologies, such as AI, machine learning, and advanced databases, not only manage Big Data but also analyze and learn from it in numerous ways. This facilitates intelligent automation across the network, providing supply chain managers with real-time insights to respond swiftly to disruptions and unexpected events.
Resilient supply chains also diversify their suppliers and manufacturing partners. Traditionally, supply chain managers minimized the number of partners and suppliers to reduce operational and logistical complexity. However, this strategy depends on stable social, environmental, and political conditions. Disruptions in one region can halt operations across the network. Maintaining multiple supply locations should be viewed as a business necessity rather than an inefficiency. Technologies such as blockchain, sensors, and advanced analytics enable managers to oversee complex partnerships and supplier contracts, even in distant regions. Additionally, resilient supply chains implement capacity and inventory buffers. Historically, supply chain profitability has relied on minimizing surplus and maintaining lean inventories. Capacity and inventory buffers are costly, and managers have often taken risks to keep costs low. The pandemic highlighted the true cost of this gamble. Companies are now encouraged to shift from “just in time” to “just in case” strategies, prioritizing resilience-building solutions. Using digital supply chain technologies, operations can incorporate on-demand manufacturing, virtual inventories, and predictive demand forecasting to stay resilient during unexpected disruptions.
How SpendEdge can help organizations adapt to the dynamic challenges of the evolving supply chain landscape: Improve supply chain resilience
Developing effective methods and solutions for modernizing supply chain operations
Our sourcing advisors play a crucial role in supply chain management by adjusting strategies in response to updates and uncertainties. They leverage data analytics to guide decision-making, mitigate risks associated with inventory levels, and collaborate with inventory managers to avoid exceeding stock limits or falling below predetermined thresholds.
Identifying potential opportunities for contact management
Our experts develop and implement strategies to identify, evaluate, and select suppliers that align with business goals. They actively negotiate with suppliers to secure favorable terms, pricing, and contracts. Additionally, they assess and mitigate risks associated with the supply chain, considering factors such as geopolitics, finance, and operations. Prioritizing the establishment and cultivation of strong relationships with key suppliers, our experts foster collaboration, drive innovation, and nurture long-term partnerships.
Developing significant supplier intelligence and ensuring efficient supply chain management
Our sourcing advisors provide guidance and expertise to optimize an organization’s supply chain process. They provide strategic insights, recommend best practices, and assist in developing strategies aligned with the organization’s goals. Furthermore, these advisors help organizations make informed decisions regarding supplier engagement and effective management of supplier relationships.
Success Story: How we helped the leading pharmaceutical company in addressing and mitigating challenges within their supply chain
Our client is a renowned pharmaceutical company based in the US, recognized for manufacturing a variety of life-saving medications.
The client faced substantial challenges within their supply chain owing to the continually evolving dynamics in the industry, uncertainties in the global market, and the necessity for enhanced resilience in response to the impact of inflation.
Our experts at SpendEdge meticulously analyzed global pharmaceutical trends and regulatory changes, leading to the proactive implementation of a monitoring system for anticipating industry shifts. As a strategic recommendation, we advised deploying a state-of-the-art Inventory Management System (IMS) for real-time tracking of inventory across the supply chain. Additionally, a thorough supplier risk assessment was conducted, resulting in the identification of alternative suppliers for critical raw materials and the establishment of partnerships for a more resilient supply chain. Flexible contracts were negotiated to adapt to changing market conditions.
Our solutions helped the client to successfully convert its supply chain into a resilient and agile system capable of enduring the dynamic challenges within the pharmaceutical industry.
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Conclusion
In the face of evolving supply chain challenges, organizations must embrace digital transformation and strategic resilience to maintain operational efficiency and competitiveness. By leveraging advanced supply chain management technologies, automation, and data-driven insights, companies can enhance visibility, streamline processes, and build robust, adaptable supply chains. The integration of strategic inventory management, flexible vendor selection, centralized invoicing, and rigorous adherence to contractual obligations are essential components in navigating current and future disruptions.
Author’s Details
George Mathew
Associate Vice President, Sourcing and Procurement Intelligence
George is a procurement specialist at Infiniti Research and provides advisory services to clients across the pharmaceutical, CPG & FMCG, energy, and automotive sectors. He specializes in the procurement areas of industry benchmarking, cost modeling, rate card benchmarking, negotiation advisory, and supplier intelligence.
