The modern consumer is more demanding than ever—he wants a variety of products to choose from, he wants them to be produced via ethical business practices, and he wants his stuff delivered (for free!) overnight.
Building a responsive supply chain is the only way for companies to meet those expectations and serve that demand.
Responsiveness is a concept that flips many traditional business practices (product development, manufacturing, and logistics planning) on their heads. Supply chain has forever been focused on efficiency—making more profit by producing better products at a lower cost, transporting materials and finished goods faster, or any other tweak you can imagine in the increasingly complex supply chains we see today.
But the incremental gains achieved through efficiency are no longer enough to stay competitive with innovative companies like Amazon. Instead, the entire supply chain must be completely reworked.
Digitalization makes responsive supply chains work. Without a complete digital transformation, companies are bound to traditional, linear supply chain processes. This severely limits their ability to respond to shifting market demands.
In this post, we’ll look at how responsive supply chains differ from the traditional model, the issues associated with traditional supply chains, and how to become more responsive through digital transformation.
Supply Chain Today
The supply chain of today, and yesterday for that matter, flow in a linear process through four different areas of an organization:
- Marketing researches demand and predicts how to sell into it.
- Product development solves for the demand.
- Manufacturing procures the materials and assembles (or, with software and online services, designs and codes) the products at scale.
- Distribution gets the products into the hands of the consumer.
While this model is oversimplified, many organizations use a core process very similar to this.
It’s important to note that there are inherent silos between each function of the supply chain in this model. Some are apparent, like when the product development and distribution pieces are different companies in different time zones. Other silos are subtle, like the marketing and manufacturing teams working off different data sets.
There are dozens of other areas where data, people, and processes are cut off from each other with a lack of transparency.
Yet still, with defined processes that can be constantly improved upon with various efficiencies, this system works to get products into the hands of consumers. But there are plenty of issues present in this model.
Issues with an Inefficient Supply Chain
The obvious problem with a linear, siloed supply chain like the one described in the previous section is that if any one area is disrupted, the consumer suffers.
A hurricane impedes the trade route of a carrier? The shipment won’t be on shelves in time for the holidays.
The fidget spinner fad is over? You now have a warehouse full of inventory that you can’t even give away, much less sell at a profit.
To be clear, both of those examples would be problems for even the most responsive supply chains, but the point is that damage could be better mitigated.
For example, if an analyst in the marketing and sales department is tracking a slight decline in fidget spinner sales, that information should immediately flow to manufacturing and distribution—with advance warning, manufacturing can use their raw materials and machines to make something else. And while that’s happening, the logistics department can fill its carrier with something else, or sell the capacity to another company.
Operational responsiveness allows companies with the flexibility to rapidly react to these types of disruptions and capitalize by using their supply chain as a strength.
Events like this happen all the time, and many supply chains are built with enough margin to account for the losses they incur. But the thicker your margin, the more chance you give Amazon to eat your lunch.
How to Build a Responsive Supply Chain
A truly responsive supply chain can help organizations not only mitigate the problems described previously, but also open up new ways to innovate that weren’t possible before.
Beyond the need to digitize every process you have, you’re going to need to cover these four areas to build a responsive supply chain:
If an order is late, you shouldn’t have to make a phone call to figure out why. Radio frequency identification (RFID) Bluetooth technologies, GPS tracking, and various other technological systems are being used to track movement of items and are capable of providing real-time updates that can be ported into a digital platform. From there, depending on the configuration options of the platform, you could even send out alerts proactively if a delay is expected.
Smart warehouses can alert manufacturing when certain inventories get low, prompting procurement to order new materials.
Visibility into your entire supply chain opens many doors for crisis response, forecasting, and accountability.
A holistic approach
Partners, third party logistics providers, and suppliers are often kept out of the loop, or only given access to a certain piece of the puzzle. Why? Perhaps to hide the margin, a piece of sensitive information, or perhaps because the organization hasn’t figured out a way to share the data in a way that’s informative.
But by orchestrating collaboration between all the parties involved, you can find efficiencies that otherwise wouldn’t be possible. For instance, say you have a standing Monday morning meeting to update the status of an order. If everybody is receiving that information as it happens, they can review it Sunday night on their mobile device—no need for a meeting to discuss info that’s apparent and accessible to everyone.
A networked supply chain that can collaborate helps eliminate process latency.
It’s difficult to predict demand with pinpoint accuracy, and if you’re pinning supply and revenue outcomes based on an incorrect number, terrible things can happen. Rather, consider establishing a range of potential outcomes and the corresponding actions to the high and low side of demand.
By mapping out multiple scenarios ahead of time, you can set expectations for the low end while being prepared to deal with the demand if it reaches the high end of the forecast range.
Flexible or partial supplier contracts
Contracts are part of business, but huge, scary, non-compete clauses can have the opposite effect of what’s intended—rather than protecting your business interests, they scare off partners. It’s becoming an ‘old-school’ way of handling contracts.
The modern way of handling contracts is to respect your supplier’s margin, realize you’re not their only customer, and allow them to do business in ways that suits them—assuming, of course, you still get the service you need.
Flexible contracts outline acceptable performance and give other companies the flexibility to fulfill production orders in accordance with the rise and fall of demand.
On the distribution side, partial contracts allow shippers to maximize capacity and be more efficient with their transportation routes—a nice thing to offer your distribution partner, if applicable.
As expectations rise among product quality, availability, and last-mile delivery, responsive supply chains become absolutely necessary for businesses to stay competitive. Digitization, and more importantly digital transformation, is a key component of building a responsive supply chain. For ideas how you can use electronic signatures, document workflows, and many more online document tools in your supply chain, don’t hesitate to reach out to an expert at Dropbox Sign.