Uncertainties that affect planning
Planning your supply chains in the face of ongoing uncertainties can be stressful – your operational plans will never be ‘right’ and they could be very wrong. And there are no sympathies from other functions in the business! So, viewing your supply chains in the same old way (SOW) will not help to improve the situation.
The uncertainties surrounding global shipping and deliveries will continue for some time – there are forecasts of it continuing out to the end of 2022. As discussed in previous blogposts, the Lead-Time Syndrome for an industry can only be corrected if end-users reduce demand or suppliers increase capacity.
There is currently no indication that end-users of household goods and vehicles in developed countries are reducing demand. Although new ships and containers have been ordered, it may be that capacity through the delivery links of supply chains are the actual problem. For example, this week, 45 container ships were anchored off Los Angeles, but the port of Long Beach is not working 24/7 to clear the backlog, due to insufficient transport capacity out of the port.
Other countries are experiencing their own problems through supply chains; the most publicised being the UK. Not only are there disruptions caused by the pandemic, but also Brexit, by which the UK left the EU. This has resulted in about 1.3m foreign born workers (including 14,000 truck drivers) leaving the UK over 18 months. It has affected food and beverage businesses that supply retailers, fuel supplies and eCommerce distribution centres; a situation that could take up to 18 months to fix..
And now there is the supply and price of gas. Fertilizer manufacturers have shut factories as it is uneconomic to produce. However, a by-product from the process is carbon dioxide, used in beverage and health care. Supply is reduced and prices increased.
Also, the pandemic is not going away. There is talk of ‘back to normal’ in developed countries by the end of 2022. However, Newsweek magazine notes that only 16 countries have fully vaccinated at least 70 percent of their adult citizens (and 80 percent is the preferred minimum). Further mutations are likely to occur and a new variant may emerge that is resistant to vaccines; thereby again putting the world at risk.
Then there is climate change. Extreme weather conditions, will increase in frequency, duration and intensity and these will also affect suppliers that are not known to you, being at tiers 3 and 4 in your supply chains.
Options for supply chain professionals
In response to the uncertainties, companies may incorporate longer lead times into their operations plans. However, this increases the order size placed on suppliers, who, in turn, increase their lead times. Companies may also select alternative forms of transport, but if many companies select a particular mode or node, then capacity constraints appear. Publicity has been given to large US retailers that have chartered container ships to guarantee transport of goods. However, ocean shipping is but one link in a supply chain; access is required to port capacity and road/rail connections to the major warehouses.
Planning for business continuity requires the range of uncertainties that could affect your business to be understood. To commence, Identify the macro external uncertainties (similar to those discussed above) that could affect industries, material types, transport lanes or labour through your organisation’s supply chains and therefore suppliers at any tier. The uncertainties are then converted to structured risks (identifying the likelihood and consequences), with options and trade-offs evaluated across source, make and deliver. Only then will the risks within your supply chains be analysed.
To support this analysis, requires a map of your organisation’s Supply Chains Network, containing all the details available about suppliers (including contractors, and 3PLs), supply chain nodes and links and transport modes used. A critical part of the Map is Supply Markets Intelligence, which identifies potential risks within the main supply markets that the organisation accesses. Alongside the Map should be the Supply Chains Continuity and Disaster Recovery Plans that identifies and explains the actions that can/will be taken under the most likely scenarios of disruptions.
When the Risk Analysis is completed, options to mitigate against negative outcomes can be considered. These may include:
- reduce the length of supply chains – develop domestic capability (‘on-shoring’) and ‘near-shoring’
- diversify the supply base; identify locations where supply is concentrated (these may be at lower tiers in the bills of material)
- manufacture purchased parts in-house to ensure availability
- outsource manufacturing to more effective/efficient provider(s)
However, each of these (and other) options can take a long time to negotiate, plan and implement. So, in parallel improve the processes for planning your supply chains in light of increased risks:
- performance metrics to measure variability, reliability and constraints – costs are an outcome
- evaluate simplifying supply chains – reduce the number of product platforms and the ‘long tail’ of products (SKU rationalisation)
- implement Sales and Operations Planning (S&OP) to balance the demand and supply influences. Within the S&OP process, Operations Planning should:
- use alternate bills of material for flexibility against supply constraints
- track and utilise the patterns of planning lead times and order cycle times
- utilise availability measures – Available in Stock (AIS); Available to Promise (ATP); Capable to Promise (CTP); Capable to Deliver (CTD) that identify actual transport availability. Forecast transport requirements by each supply chain link
- analyse where inventory should be placed (location), in what form, and for what purpose (form and function)
- identify trends that are available from market demand (point of sale, distribution data and sales markets reports), customer order and delivery patterns
Actions for Procurement:
- improve payment terms for suppliers, including 3PL and transport providers
- work with tier 1 suppliers to understand their capacity issues and provide Sales and Operations Planning (S&OP) data
- develop contingent supply contracts, identifying events or conditions and the supplier’s response
- improve visibility of supply from tier 1 suppliers and work to obtain visibility from tier 2 suppliers
Over the past years, Learn About Logistics has discussed the main role of supply chains professionals as being the management of risk through their organisation’s supply chains. Are senior executives now starting to realise this and adjust their expectations of performance for the group from ‘cost-down’ to ‘business continuity’?