Blog posts: Supply Chain Management for SAP ERP

Crisis Requires Precision: How Are You Managing the Future of Your Supply Chain?

Our country, and the world, are in the midst of a supply chain crisis where material shortages will be a persistent challenge for the foreseeable future. What are the levers of control that companies can rely on to manage within this environment? 

Hire more people?

From 2000 to 2018 there were more unemployed workers than available jobs.  That ratio flipped in 2018, and the gap accelerated in 2021. According to Statistica Research Department, the number of job openings in November 2021 was 10.56 million, and the number of unemployed American as of December 2021 is 6.3 million (source: US Department of Labor), creating an employee resource gap of 4+ million workers.

Expand your supplier base?

The problem is global and pervasive, so the chances of finding a new supplier with excess capacity, as well as earning allocation priority over established customers is slim to none. 

You can place forward buys as a hedge against future constraints. It’s a safe bet many companies have already instituted this strategy. What will be the impact of this hedging on future supply? Let’s consider the bull whip effect that was studied and well documented over 30 years ago. An inaccurate buy signal by the retailer will have a 4x impact as that variance ripples through the extended supply chain, further exacerbating supply constraints well into the future. 

What remains as a best course of action is precision. Starting with demand planning accuracy, at the lowest level of your supply chain, as your best chance to maximize fill rate during a global supply crisis. That means technology investments in software with mass computational capabilities to deliver algorithmic planning and machine learning against large datasets. 

Demand Planning precision is the best way to reduce the bull whip effect and prevent constrained supplies from ending at the wrong distribution point. This misalignment of supply will add cost and time to the supply chain and further increase the risk of missed customer requirements. 

Supporting demand planning precision is a proactive monitoring and alerting system to detect and notify supply chain deviations. This is where integration and real time data processing are vital. The proactive alert monitor must be fully integrated with the Materials Requirements Planning engine, so no time is wasted with moving data between disparate systems.  When precision isn’t perfect, quick response matters.    

Our global supply chain crisis will be persistent and prolonged. The enterprises that take action now to develop precision and quick response in their supply chains will outperform and out maneuver their competitors.

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