Even though the supply chain industry has been around for a long time, the complexity of supply chains has increased many folds since the 2000s. The world is rapidly witnessing a transition in supply chain from the linear nodal systems of interaction among consumers and suppliers towards a diverse and autonomous model.
The primary sources of increased complexity are the ever-increasing customer expectation, globalization of operations and expanding supplier network. Customer demands more choices, shorter lead times and tailored delivery. Along with that organization needs to meet their growth aspirations. Moreover, growing product lines, numerous shipping options, and wider geographic distribution have called for integrations of new technologies. All these have opened new avenues of opportunities and collaboration between the various stratum of the supply chain, adding new layers of complexity.
Let’s discuss the challenges posed on managing the supply chain due to increasing complexity.
Increased Number of Milestones to Meet Customer Expectations
As organizations aspire to grow, its customer base and product portfolio also grow. To manage this increasing number of suppliers, other technology partners get added in the chain. This subsequently adds more steps needed to complete orders and provide a tailored delivery. Here achieving milestone depends on the kind of order placed. An order might be contingent on order manufacturing, order splitting and multi-leg international shipments. All these factors make the supply chain even more complex.
Ever-Increasing Operational Cost
Today logistics and supply chain operations contribute around 5% to 50% of the total product cost. Customers demand more focused, unique and differentiated products which in turn create need to manage a large product portfolio. Due to the business going global, increased product line, expanded geographic distribution, and shift from decentralized to specialized procurement, it has become very difficult to maintain optimum operational cost. All of these also adds to warehouse storage, administrative and operational cost.
Tracking Communication for Making Quick Informed Decision
Today, about 80% of the supplier network activities happen outside an organisation involving various stakeholders to serve customers across the globe. This often leads to miscommunication and disinformation among the supply chain processes due to factors like geographical obstacles and foreign language barriers. As a result, communication and the ability to make quick informed decisions in the supply chain based on multidisciplinary information can be extremely challenging.
Also, the dawn of advanced communication technologies (internet, social networks) has provided businesses access to a huge volume of information. But out of all these humongous amounts of data having the right data at the right time is a challenge. Also, the validity of information thus collected may last only for a limited time due to fluctuating market conditions. All these may cause deficient or false data to be captured which in-turn prompts a Bullwhip Effect.
Heterogeneous Applications Makes the System Fragile
As supply chain complexity increased, business imbibed heterogeneous technology to facilitate seamless execution of supply chain processes. Since there are multiple vendors and stakeholders involved the overall system becomes fragile. The data accumulated using sophisticated technologies must pass through each interconnected department precisely as it is. Any kind of loss or alteration in the information passing process can result in huge damages for the business. Just imagine the scale of damage, if decisions were taken based on erroneous data. Sounds scary, isn’t it?
Need for Precise Demand Forecasting and Business Planning
Demand forecasting in the supply chain is easier said than done. Even the big players fail to reach 100% precise results. Walgreens faced a huge loss of $1 Billion in 2014 due to incorrect forecasting. This depicts the criticality of the precise demand forecasting system.
With demand volatility increasing at an unprecedented rate and higher service expectations, it becomes difficult to reliably forecast an increasing number of SKU combinations. This impacts inventory to accommodate long-tail, erratic demand. What happens in-turn is extra freight costs, excess and obsolete inventory.
With products proliferation and ever-increasing demand volatility, channels become more specialized and the ability to forecast accurately is getting more difficult. Also, demand data is becoming more complex, and the usual responses are less effective. And as business goes global demand planning gets more terraces to cover.
For supply chain professionals, managing a supply chain that handles thousands of products and involves numerous stakeholders requires tackling a lot of complexities. And believe me, these complexities are here to stay and grow. You need to excel in tackling complexity and convert it into your competitive advantage. While we analyse these impacts, we can clearly see that gaining visibility into each component of your supply chain helps to manage expectations real-time and allows you to set the right expectation to your customer. There are several visibility solutions that help you manage complexity. Pick the ones that help you create wow experience for your customer.