After nearly three arduous years of continuous global shocks to supply and demand, some supply chains are feeling a sense of calm. However, it's that kind of calm that comes right after a big storm. It's a relief that the worst is over but then you realize you have to clean up and prepare to be ready for the next conflict.
While most global supply chains are working to build up more resilience, numerous side effects of the pandemic, war and economic concerns are slow to dissipate. This has led to uneven levels of relief across the globe. Some industries and regions are recovering and strengthening faster than others.
One of the most notable effects of the pandemic on supply chains has been the drop in global shipment volumes. The unprecedented demand spikes of 2020-2021 strained freight capacity, which drove freight rates to record highs, which helped fuel inflationary pressure. As a result, consumer and B2B buying slowed down retail and manufacturing inventories ballooned in 2022.
Due to the lingering economic uncertainty, retailers and manufacturers are exercising cautious inventory management practices, especially for non-essential goods. Demand forecast accuracy remains elusive, especially as consumer price inflation concerns loom overhead like a dark cloud. And while some companies are making headway to reduce their inventory levels, most are holding too much inventory or have inventory that is out of balance—too much of the wrong inventory, too little of the right inventory or inventory in the wrong place to service orders.
However, managing inventory levels is not the only challenge companies face. The uneven relief across the globe has made it difficult for firms to fully recover, as their suppliers, buyers and other partners may be experiencing different levels of localized disruption. This leads to a supply and demand imbalance, where companies struggle to meet demand due to factors beyond their control.
At the same time, retailers are back to enforcing service-level agreements on their vendors, like on-time, in-full (OTIF) requirements. Some manufacturers' chargebacks from missed targets have escalated to nearly 4500% above pre-pandemic levels. Coupled with ongoing labor shortages and rising wages, manufacturers are not likely to reduce prices any time soon, further fueling inflationary concerns.
It's All Connected
The takeaway of this situation is that everything is connected. For over 60 years, The Beer Distribution Game has taught supply chain students about the bullwhip effect. The game highlights the importance of information sharing and collaboration among stakeholders in the value chain.
If you've never played The Beer Distribution Game, it's a role-play simulation of a simple, linear supply chain from brewer/manufacturer to distributor to retailer. Over a series of rounds (sales cycles), each player can only see their downstream demand/orders and their inventory, they then can decide how much to order upstream. As you can imagine, this non-coordinated chain with limited visibility quickly gets out of balance. But then, magic happens. Players reset the board, but this time, they can collaborate and share information across the value chain. And abracadabra, the supply chain flows smoothly and efficiently at all points in the chain. In other words, everyone wins. There is shared value and all parties have reduced costs and increased revenue.
So why haven't real-world supply chains adopted this simple approach? For starters, the real world is far more complicated, with hundreds, often thousands, of suppliers and partners to make, move and sell goods in a complex world full of politics, weather and disease. The technology adopted by supply chain leaders and practitioners is often siloed, focused on what they can control within the four walls of the enterprise. Sure, many of these systems consider external data as input; still, there was no information sharing and collaboration like the Beer Distribution game taught us.
From Digital Dexterity to Ecosystem Collaboration
Most, if not all, supply chains are moving toward digital transformation. The recurring global disruptions over the last several years have served as a forcing function to move to digital processes. At both the employee and enterprise levels, digital dexterity—the ability to pivot quickly using digital tools—is on the rise. This is a step in the right direction; it has enabled companies to survive recent disruptions. However, the lingering side effects described earlier are evidence that it's not enough.
To future-proof supply chains, companies need to fully embrace a digital dexterity mindset and think holistically across the value network and ecosystem in which they operate. Traditional, siloed supply chain technology will no longer suffice in delivering strong business results in today's volatile environment. Companies must rethink their approach and adopt step-change technology connecting their end-to-end ecosystem.
This means connecting and collaborating across all tiers of upstream and downstream partners, suppliers, distributors and logistics partners to ensure they can meet the demand. And to detect issues early, understand the impact and orchestrate adjustments to minimize the effect. Like the Beer Distribution game, goods will flow smoothly and efficiently from source to sale.
The good news is that this futuristic-sounding technology exists today. Supply chain management (SCM) platforms that are built on a network of hundreds of thousands of suppliers, distributors and logistics partners. SCM platforms harmonize data from disparate sources so that everyone speaks the same language and operates on the same set of facts. SCM platforms that connect planning and execution, utilize artificial intelligence, machine learning and proven heuristics to automate tedious tasks provide insights on valuable operations. A connected, multi-enterprise supply chain platform.
The only certainty today is uncertainty. To thrive, it is essential for firms to adopt a digital-first, ecosystem-centric mindset. They need to adopt multi-enterprise SCM technology to connect and collaborate across all tiers of suppliers, partners and distributors to overcome these challenges and future-proof their business.