You do not need to be in the manufacturing or distribution industry to understand that supply chain challenges are…in great supply. Once an overlooked component of business operations, the COVID-19 pandemic has put the supply chain in the headlines, and consumers now understand some of what you are facing when they read things like:
“Delays, product shortages and rising costs continue to bedevil businesses large and small. And consumers are confronted with an experience once rare in modern times: no stock available, and no idea when it will come in.”
- The World is Still Short of Everything. Get Used to It. – New York Times, August 30, 20211
What consumers may not understand are all the reasons why today’s supply chain challenges are so complex. Almost all parts of the supply chain, for many industries, are experiencing the bullwhip effect,2 causing disruptions to every facet of the supply chain. If one link in the supply chain bends or breaks, the rest of the components could grind to a halt as well. The result is that organizations, especially manufacturers and retailers, must be hyper-aware of their supply chains and be prepared to develop strategies to mitigate disruptions at any time. In this article, we will focus on these key components.
Supply Chain Transparency
Along with the COVID-19 pandemic, severe weather events, nationalist policies and political disruptions are impacting the supply chain. Manufacturers and retailers must remain aware of and study these events to prepare for everything from congested ports in China and container shortages to hurricanes shutting down pipelines or interstates. When core commodities are concentrated in a geographical area a world away, a supply chain manager must now take into account any disruption to those resources to minimize the impact on manufacturing operation. Maintaining that level of transparency is directly related to the next key challenge - data. Organizations are increasing investments in advanced analytics and capabilities to capture and evaluate data from disparate sources to make more informed decisions. Additionally, companies are investing in Internet of Things (IoT) and blockchain ledger technologies that enable surveillance capabilities requiring more real-time data.
Focus on Supplier and Business Partner Data
As noted above, investments in advanced analytics and technology tend to be aimed internally. Since much of the supply chain, by definition, relies on the interconnectivity of multiple suppliers and business partners, the same focus, quality and governance are needed for vendors and business partners. Organizations must be sure that internal data and information from outside suppliers share the same criteria or issues like inventory management will be skewed, which impact sales, labor workload and other components of the supply chain.
Focus on Core Processes
Most company supply chains have evolved over the last 20 years to be a complex and disparate international network of suppliers, manufacturers, processes and technologies. This ecosystem was based on just-in-time (focus on keeping minimal inventory) and lowest product cost (produce at the lowest possible cost) management principles. The COVID-19 pandemic highlighted that current ecosystem and management principles are somewhat brittle and inflexible, and that companies might need to rethink and reengineer a new ecosystem and evaluate core processes that are more flexible and resilient, while still maintaining cost efficiency.
Focus on Talent
Recruiting and retaining talent is critical for all organizations, but the “war on talent” is disrupting manufacturing’s supply chain from end to end. All industries are scrambling to fill positions and competing for skilled manufacturing workers can get expensive. In a recent industry survey, 56 percent of manufacturers reported increasing base wages by up to five percent, and 22 percent of respondents increased their base pay rates by 6-10 percent3.
Workers are also demanding more schedule flexibility and that their employer be more conscientious about environmental and social issues (see below). Having to revamp compensation structures and adopt a corporate culture to the evolving needs of workers is a supply chain disruption that will demand consistent monitoring.
Additionally, all industries, but especially manufacturing, must develop a strategy to ensure that their workforce has the skillsets to help move the industry forward. A key component of the supply chain is when only a select few employees can do the job. Manufacturers must find ways to train their workforce to utilize new technologies and ideas, providing advanced institutional knowledge and a path for growing successful and more rewarding careers.
Sustainability, Environmental and Social
Alluded to in the labor commentary, Environmental Social Governance (ESG) is impacting supply chains for many industries and will continue to do so. Companies are currently occupied by managing and navigating through a global pandemic. That being said, they cannot lose sight of a large wave that is starting to materialize that will further challenge the supply chain. Climate, governmental, investor and societal changes and trends are rapidly focusing on a company’s sustainability practices, directly impacting decisions related to all aspects of their supply chain, not just sustainability. Not only will there potentially be new regulations and a new generation of skilled workers, but investors will desire that organizations be mindful of larger purposes like inclusion and diversity, social injustices and the environment. Now manufacturers must adapt their corporate cultures, re-engineer operations and carefully vet vendors and partnerships to meet ESG standards.
How DHG Can Help
As supply chain challenges continue to expand and evolve, look to the professionals at DHG to help develop proactive strategies to keep your organization on pace. By teaming consultants from the manufacturing industry with our tax, advisory and assurance professionals, DHG is uniquely able to collaborate with your business to address elements specific to your supply chain and business goals.
In DHG, you gain resources and innovation to help you with inventory management, data analytics, workforce strategies and adopting ESG programs. We look forward to learning how we can best help you. For more information, reach out to firstname.lastname@example.org.