Why did Supply Chain performance decline in the last decade

Supply Chain Performance Decline

Why did Supply Chain performance decline in the last decade

If you are reading this article, then it is likely that you are concerned with an apparent decline in supply chain performance within your organisation. 

Or perhaps you are concerned with slipping profit margins and are searching for an explanation for this occurrence. 

Either way, you have come to the right place. The performance of supply chains is indeed slipping. Even before the pandemic, supply chains were scoring negatively on a number of key metrics including Days of Inventory, Inventory Turns, and Return on Invested Capital. The virus exacerbated this already dire situation, with 72% of companies reporting negative effects caused by the pandemic. 

A FedEx van illustrating the supply chain.

The truth around end-to-end supply chains

 

Supply chains, and specifically end-to-end supply chains, have been the buzzword on everyone’s lips. Organisations and individuals have been constantly discussing the latest and greatest innovation that will make their supply chain more connected, more efficient, and more robust.  

Distinct lack of supply chain risk management 

The Business Continuity Institute (BCI) ran a survey in their Supply Chain Resilience Report 2017 which showed that only 25% of companies who took part had not experienced some form of disruption to their supply chain in the previous 12 months.  

That means 75% of companies had experienced supply chain disruption. 

Most of these disruptions were of a familiar nature: IT/telecommunications failure, cyber-attacks, data breaches, outsourcer failure and transfer network disruption.  

What is so alarming about this report is that it was conducted before the pandemic. Years before the pandemic in fact. The idea that the pandemic was the sole reason behind significant disruption to previously functional supply chains must be ignored. The pandemic did indeed cause huge disruption but supply chains were dysfunctional before that. 

Instead, the pandemic highlighted, and exposed, the systemic weaknesses in all of our supply chains. Businesses were simply not preparing for serious, global disruption. Supply chains were cutting corners when it came to risk management to reduce cost.  

Just-in-time is not risk management 

Supply chains to reduce cost organizations employed variety of ways such as JIT.. and in many cases it even went to the extreme case of cutting corners in a variety of ways. Just-in-time is a good example: 

Just-in-time is a form of inventory management where production is pulled through rather than pushed through. This means that inventory is requested from suppliers only after the customer has made a specific order. The company does not hold stock for future orders.

This technic saves money because the plant does not have unused inventory lying around. However, during disruptions, this can lead to a situation where manufacturing plants are unable to fulfil any existing orders and may have to issue refunds or even close down as the difficulty of getting new stock becomes insurmountable.  

Just-in-time is a form of lean manufacturing which has proved incredibly successful for businesses such as Toyota but for less established companies, it comes with associated risks if not properly implemented.  

Just-in-time (JIT
Car manufacturers rely on niche manufacturers of touch screens and any disruption to this supply could halt car production.

What mistakes do businesses make during risk management? 

Another mistake made by organisations in the risk management process is overreliance. Avoidance of overreliance is a key part of supply chain risk management and so the tendency for businesses to over rely on a supplier is alarming. 

Many companies suffered, and still suffer, from overreliance issues 

The increasing complexity of modern products means that many manufacturers are relying heavily on very few plants located in an exceedingly small collection of countries for their parts.  

Using car manufacturers as an example, car manufacturers do not have the expertise or inventory to create their own touch screens. And yet, touch screens are becoming a mainstay in modern vehicles and manufacturers want the latest and best touch screen technology in their vehicles.

A disruption to this supplier relationship, which is often with a far eastern companies, can bring production to a complete standstill.  

What can businesses do to prevent overreliance? 

There are three main things that organisations can do to prevent overreliance and mitigate against a Coronavirus-like event that could occur in the future.

  

  • Become aware of their biggest vulnerabilities. 

In many ways, this is an extension of the supply chain risk management process. Companies need to conduct detailed research into their suppliers and find out the risk and cost of disruption.  

  • Holding emergency stock 

This is a simple but often ignored solution to disruption. Holding emergency stock buys any business time and time is vital in overcoming issues with suppliers and creating new frameworks for production. It can also help to fulfil orders that came in before the scale of disruption was realised.  

  • Diversify the supplier base.  

Businesses in recent years have been pursuing a supplier strategy of ‘Plus One’. In this strategy, businesses continue to have their main supplier base in China, where the quality of the product is high and the cost is low, but also pursue an alternative supplier in another Southeast Asian country in the case of disruption.

Again, this is another strategy that requires investment and considerable amount of time to establish, but one that will be hugely beneficial in a crisis.  

If organisations can start adhering to these three principles, they will inevitably improve the performance of their supply chains and prevent any major, catastrophic disruptions down the line.  

See how we have helped global supply chains to improve their existing architecture and also introduce gradual technological improvements at an affordable outlay 

No Comments

Sorry, the comment form is closed at this time.