Listen to this article now
Recent uncertainties, not the least of which are the COVID-19 pandemic and geopolitical-fueled trade disputes, have challenged supply chains across the planet. As a result, organizations need to assign top priority to supply chain management in their business planning, including particularly the implementation of their digital transformation strategies. Many organizations have struggled with protecting their supply chains during the COVID-19 crisis in areas such as ensuring stable component and raw materials procurement. Moreover, recent U.S.-China trade disputes have altered the supply chain practices of major organizations across the planet.
Beyond the global pandemic and trade disputes, natural disasters are another reason that supply chain management is so essential. Recent winter storms in Texas caused chip manufacturers Samsung and NXP to halt production at their Texas facilities, further aggravating chip shortages for electronic and auto manufacturers already dealing with pandemic-related permutations. The auto industry, for example, has warned that the recent supply chain disruptions of their chip supplies could amount to losses worth billions in sales. During the course of the last year, we have collectively learned that supply chain management warrants both serious consideration and immediate action — and that’s where supply chain management best practices come into play.
Supply Chain Management: Prioritize Revenue Assurance First, Cost Savings Later
Traditionally organizations have tended to implement their supply chain management strategies based on cost savings as the lead priority, without risking unacceptable trade-offs in quality. Even before the COVID-19 pandemic the supply chain management procurement processes were primarily driven by cost savings objectives and not broader revenue assurance aims.
The cost savings-first approach often resulted in ad hoc and expensive measures, such as buying high in demand parts at peak prices out of necessity and fast-tracking materials at expensive rush delivery prices to assure the timely delivery of the final products. By resorting to such measures, supply chain management decision makers frequently undermined their very own cost savings imperative. Factor in black swan events, such as the COVID-19 pandemic, as well as the uncertainties originating from international trade tensions, and it becomes clear that supply chain management requires strategic perspectives beyond leading with a cost-savings first and foremost directive.
Supply chain management decision makers must develop plans that emphasize revenue assurance objectives which put increased stress on revenue stabilization considerations, such as supply chain reliability and security, to ensure supply chains are better able to handle disruptions, especially of the unexpected variety. This approach requires organization-wide collaboration geared toward fulfilling revenue assurance targets that span across all business units and involve a variety of stakeholders, such as CEO, CFO, and CIO, which can identify shortfalls and gaps stemming from over emphasis on cost-cutting measures that has limited supply chain agility.
A more holistic approach centered on revenue assurance can ensure organizations mitigate supply chain upheavals and make supply chain management integral to attaining the highest priority revenue goals assurance. Through assigning revenue assurance a higher priority than cost savings, organizations gain more peace of mind by avoiding the inflexibility and expensive cost overruns linked to the cost savings-first agenda.
Supply Chain Management: Transparency Matters
The process of mapping an organization’s entire supply chain implementation is typically complex and challenging. However, it is a challenge that organizations can ill afford to shrink from anymore. Mapping an organization’s entire supply chain network requires transparency to successfully execute the mission. Expanding and assuring transparency requires ascertaining the location and availability of inventory and logistics status across the entire network and not relying on the reporting of the most important or simply a sampling of suppliers.
The holistic approach requires more investment of resources to accomplish, however the benefits far outweigh the costs as the downside for supply chain disruption is steep. Through comprehensive mapping of the entire supply chain network, including inventories, organizations can make contingency plans with greater built-in efficiencies through comprehensive inventory and logistics visibility.
A strategic commitment to transparency augments the ability of organizations to use artificial intelligence (AI) engines and machine learning (ML) capabilities to improve overall supply chain management processes including contingency planning. With transparency, AI/ML platforms benefit from using a wider range of inputs as well as expanded opportunity to cleanse and coordinate data.
As a result, AI/ML becomes integral to the organization’s ability to optimize the entire supply chain management network including detecting and deterring security intrusions, broader automation of SCM processes, streamlining supply chain planning, as well as applying predictive analytics to contingency planning, supplier selection, supplier relationship management.
Supply Chain Management: Prioritize Best Practices Now
To improve their supply chain processes, organizations must communicate that their topmost business objectives align with fulfilling revenue assurance goals. As most organizations are still grappling with legacy platforms, such as enterprise resource planning (ERP) systems, they must ascertain what gaps and shortcomings are impediments to the comprehensive mapping of their supply chain network. Thus, organizations need to select supply chain partners that can provide complete and accurate assessments of their supply chain processes such as data, applications, developments, integrations, interfaces, roles, and change management capabilities.
The coming year will be a challenging one for supply chain management decision makers as they grapple with the lessons learned from the supply chain disruptions linked to the global pandemic, geopolitical trade disputes, and unanticipated outcomes from natural disasters. Improving supply chain reliability and mitigating disruptions to supply chain networks is attainable by adopting best practices such as holistic mapping of the supply chain network and putting increased focus on revenue assurance priorities, transparency enforcement, and upscaling of the partner selection process. As supply chain becomes increasingly integral and vital to fulfilling the highest priority business objectives of organizations, the ability of supply chain management decision makers to deliver on protecting the supply chain network is paramount.
Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice.
Other insights from Futurum Research:
Image Credit: The Network Effect
Ron is an experienced research expert and analyst, with over 20 years of experience in the digital and IT transformation markets. He is a recognized authority at tracking the evolution of and identifying the key disruptive trends within the service enablement ecosystem, including software and services, infrastructure, 5G/IoT, AI/analytics, security, cloud computing, revenue management, and regulatory issues. Read Full Bio.