The COVID-19 crisis reinforces the need for these supply chain methods
Anyone who has worked in supply chain management for a while knows that disruptions are inevitable. Unlike previous disruptions, the COVID-19 pandemic is less localized and the long-term impact on individual companies and entire industries is still unknown. It does, though, serve as the latest reminder of the importance of making supply chains more resilient to stresses.
IBM has been involved with more than 7,000 successful supply chain deployments around the globe spanning every major industry. Based on what we have learned, here are some suggestions for making your supply chains resilient.
1. Manage the ABCs: Many of us use ABC analysis to classify inventory items so we can work out ways to manage “A” items more aggressively to drive down overall inventory. “A” items account for the highest value over a period of time to your organization, with “B” and “C” items stepping down in relative value. Typically, organizations maintain low inventory and low risk of stockout by closely managing A items, while carrying higher amounts of B and C items to keep workloads down and provide high customer service.
A properly implemented strategy for B and C items will make it easier to respond when events disrupt the supply chain. If you can count on having plenty of B and C items, which aren’t as costly and represent typically 80% to 95% of your overall part numbers, then staff that is stretched thin during times of crisis can focus on solving supply problems for A items – a much smaller number of items. This allows you to keep your overall inventory under good control and deliver on more customer promises, even when the supply chain is impacted by an event.
2. Leverage analytics for shortage analysis: Most of us have seen a supply-versus-demand stockout. But many organizations have never built this simple analysis into a full report for real-time shortage visibility. Supply chain analytics can quickly help you identify precisely which items require the most urgent attention, which items are expected to run out one or two weeks from now, and so on. When you move into crisis mode, it’s critical that you’re able to identify items at risk of stockout so you can take early action.
Adding two relatively simple analytics to the standard supply-demand analysis can create a report that provides the insights you need. Those analytics include the ability to set up the report so that you can sort by first shortage date and, also, so you can either include or exclude inbound materials on order. This allows you to do two things:
- Identify the first instance of shortage. That way, the earliest problem items—where demand will exceed supply—rise to the top of the report.
- By including or excluding items with purchase orders, you can identify what action is needed. Items with planned deliveries may need to be expedited, or have deliveries confirmed so you can be confident that supplies will really arrive as scheduled. You’ll need to place new orders for other items as needed.
3. Use AI to manage supply chain disruptions: We all talk about being “less reactive and more proactive.” But, in fact, the best tools for managing supply chain disruptions are a combination of (i) tools that detect events faster and allow us to react faster for better outcomes; and (ii) tools that help us anticipate where and when supply chain disruptions are more likely so we can proactively get ahead of them. Both require the assistance of AI.
Let me provide an example. A big electronics manufacturer was hampered by limited visibility into supply planning and time-consuming manual processes. And so, the company was often missing opportunities to make timely decisions and mitigate disruptions. Deliveries would already be late or the options available would be limited and more expensive.
Using IBM Sterling Supply Chain Insights through the Fast Start program, in just six weeks the manufacturer discovered how to automatically correlate supply and carrier data. This includes Advanced Ship Notifications and shipment status updates for greater and faster visibility into inbound logistics. The company also began to use AI to proactively search for and use information about external events that could impact their supply chain, tapping into weather updates, social media, news reports, and customs and border reports.
Empowering its people with real-time insights to make more informed decisions faster, that manufacturer can now deliver better outcomes when delays happen. They can even anticipate where and when disruptions may occur to turn them into opportunities.
Disruptions are inevitable, but good supply-chain practices help ensure that businesses are better prepared. That way, they’re able to navigate disruptions today and adapt to changing markets and business dynamics in the future.