4 Ways to Improve Supply Chain Management
Order Today, Receive Tomorrow – Still a Standard or an Echo of the Past?
Companies are increasingly feeling supply chain disruption in many ways, from difficulties obtaining supplies to being unable to fulfil customer orders as quickly as they have in the past. Here are four ways you can use technology to improve your supply chain management and become less dependent on external factors.
Until recently, rapid delivery when shopping online was standard, and shelves full of various brands from around the world in a wide range of product variants was the norm. All this was the result of the smooth flow of commodities between countries, undisturbed supplies of components, open borders, and the use of the “just in time” strategy.
Distribution management in the face of a crisis
Unfortunately, the world was quite shaken by the COVID-19 pandemic that caused a domino effect when talking about supply chain. The closing of borders has shown that the strategy of delivering only what is needed (“just in time”) in order to reduce the need for businesses to spend on maintaining inventories does not work under all conditions. When it turned out that we could no longer rely on deliveries at the click of a finger, it became apparent how ineffective the this system is in times of crisis, and how dependent we are on the success of supply chain management. The need to obey more strict measures significantly reduced the number of partners, which led to dependence on often just a handful of suppliers. If we become dependent on a small number of suppliers and something happens to one of them, we are not able to maintain continuity of production, or continuity of supplies to distributors and the final customer.
In recent decades, we have observed the phenomenon of extending supply chains, reducing costs and narrowing the group of major suppliers – at the same time enabling such convenient options as same-day delivery. This is perhaps an effective tactic when everything works smoothly, but collapses when we are dealing with unexpected disruptions in the distribution network. With blocked containers in the wrong place, and some ports in China inactive or operating at reduced capacity, freight rates have risen ten-fold in some cases compared to just two years ago.
Conversely, manufacturers requiring components sold internationally to complete the production process and distribution of their goods were forced to wait for parts. For instance, UK car production fell by 41.5% in September 2021, making it was the worst September since 1982 due to lack of parts. In addition to the effects of the pandemic, the British economy still suffers the consequences of its exit from the European Union, which is associated with the impediment of trade with the countries from the European mainland and a shortage of truck drivers, which also affects some other countries, but maybe not to such an extent.
Supply chain solutions that answer distribution challenges
This all results in empty shelves in stores due to disruptions and inefficiencies in the supply chain. While there are many factors contributing to supply chain disruptions beyond a company's control, businesses are not completely powerless. Thanks to the appropriate technological tools, companies can better source top selling products, analyze demand, create comprehensive stock reports, predict slowdowns of supplies, and optimize cooperation with their suppliers.
Here are some ways that companies can use technology to improve their supply chain strategy, and therefore minimize costs resulting from supply chain disruptions, maintain business continuity, and provide the best customer experience.
1. Don't be surprised by the change: use real-time data in your systems
The supply chain is a very dynamic area of business. If something fails, we can expect a domino effect: a small delay can cause an avalanche of further deficiencies, which will result in delays in the delivery of goods to distributors, retailers and end-customers. That is why it is so important to ensure transparency and up to date information in the supply chain. It is also worth emphasizing that every participant involved in distribution should have access to the current data. This includes planning departments, warehouses, logistics units, finance departments and, most importantly, external suppliers. What is more, the data must be transferred smoothly from the source system, which may be ERP, and then sent to the supplier's systems. When the data triggers real actions (such as sending transport with an order), the recipient should be informed about this so that they can prepare to accept the order at their warehouse.
This is the ideal situation when everything is planned. However, the reality can sometimes be unpredictable and, at some point after making an order, it must be modified. For example, quantities may have to be increased, a different version of the product might have been ordered, or the system has not been updated and other products are needed. What can be done in this situation? It’s possible to pick up the phone in the hope that the order can still be cancelled. But what if the person you need to talk to is not available and you do not know their deputy? Technology comes to the rescue, allowing you not only to send a standard order and receive a confirmation of shipment, but also to use more sophisticated messages that allows you to inform partners about ad hoc “disruptions”. Standard EDI can send messages that anticipate order changes, and suppliers can confirm them by sending order change acknowledgements. The purchasing strategy can be also adjusted to the current stock by receiving inventory reports, so the buyer will always be updated about the type and amounts of available goods. The advantage of such solutions is that you can return to them at any time for audit purposes.
2. Leverage AI/ML solutions to speed up business processes
Another technological achievement that is used in the processing of documents that are exchanged between internal departments or an organization and external vendors is the use of artificial intelligence and machine learning. How?
As classic ERP and ECM require employee supervision, it is impossible to process a huge amount of information efficiently. Systems that use AI to analyze data are helpful as they free people for more business-strategic activities. Thanks to the use of software learning mechanisms based on historical data, documents can be identified and distributed to the appropriate departments automatically. This saves time, prevents human error and allows us a rapid response in the event of a disruption. Another important element is data capture, which allows data to be extracted from a document into the required system. Algorithms checking the correctness of the returned data enable the validation of the obtained information, such as GLN or bank account number, as well as intelligent text analysis, taking into account the meaning and location in the document of any data. This enables the recognition of similar and duplicate values and, if needed, suggests the correct value, indicating the percentage of probability of the correctness of the recommendation. The benefit that definitely increases the probability of avoiding disruption is anomaly detection, which detects deviations from the norm and atypical situations. It can be used, for example, to verify that the invoice amount from a given supplier does not differ from the predicted value, or to monitor the number of documents expected on the basis of regular cooperation (too data anomalies will also warn that something unexpected might have happened).
Artificial intelligence-based systems include a whole range of services, facilitating full automation of processes in the supply chain. It allows you to enter data into the system dozens of times faster than an employee performing the same activities manually, at the same time validating the appropriate values and minimizing the risk of errors.
3. Transform data approach: from internally collecting and processing to analyzing and sharing
The main assumption of the supply chain is to deliver, share and exchange. All this indicates the need for constant interaction with other party, which means that the correct exchange and constant updating of data between the parties is key to success. Fluctuating costs and demand projections make this task incredibly difficult, but strategic integrations between customers and vendors can reduce this friction. An example of such close cooperation is e-VMI (e-Vendor Managed Inventory). VMI involves close strategic relationships between vendors and their customers by putting the vendor in charge of the customer's inventory. They have access to inventory and thus do not have to wait for an order to be received, but can place it on their own. By sharing stocks and location-based data, retailers enable suppliers to ship the right products to the right stores at the right time. The result is a win-win: retailers have shelves stocked and suppliers maximize their sales.
This type of approach increases the responsiveness of the supply chain and makes it especially sensitive to unusual events such as special promotions or seasonal changes, where the movements of the goods are at a high level. What’s more, including suppliers in the procurement policy and giving them more freedom results in an overall reduction in the number of orders, the elimination of last-minute orders, and lower returns due to product replacement. VMI takes vendor data analytics to a new level of sophistication that impacts an entire business. As a supplier develops a better understanding of the real needs of customers, they become a better partner and, thanks to the resulting data transparency, order policy management becomes more efficient and carries lower costs.
4. Create data alerts and trends to predict the future
In order to prevent supply chain disruption, it’s essential to learn how to use current and historical data. Having hundreds of thousands of data records about vendors, orders, deliveries and dates results in a powerful tool that, if used well, can help predict the future and reduce the probability of disruption in cooperation with suppliers. Thanks to skilfully used data, we can maximize visibility into demand, inventory, capacity, supply and finances across the ecosystem. First, let's take the data exchanged by EDI. If we add a data tracking tool, we can easily examine the effectiveness of partner vendors. Thanks to the ability to track message flow, it’s possible to estimate the average shipping time, get feedback about orders is always in real time and, understand how often delays can be expected, and obtain information on the average frequency of the shortage of some products or the average time of order preparing and shipping. Possessing this type of knowledge makes it easy to “audit” suppliers we work with, and allows businesses to maintain a list of back-up suppliers if inventory cannot be delivered by the main business partner. Similar options are offered by the already mentioned vendor management, which creates a community of suppliers, all of whom (in agreement with buyers) are empowered in terms of order policy and inventory management. This can clearly identify key suppliers and those who are underperforming.
Summary: your supply chain needs integration of data with business processes
Disruptions in the supply chain show the extent to which unpredictable events can destroy the order we are used to. Failure to prepare for such scenarios results in additional costs, delays in deliveries, decreased efficiency, empty shelves in the supermarkets, long waiting times for orders, and more. It's time to learn from the lesson of the pandemic and see the potential in technology that can help manage potential risk, predict possible disruption, and implement plan B rapidly if it does occur. Regardless of the chosen solution, it is crucial to start collecting and processing data, and learning how to draw conclusions and predict the future from that information. Integration of data with business processes using technological tools should be the overriding goal if an organization is to operate at high speed in times when there are no disruptions, remain secure in the face of unforeseen events, and even predict certain situations.
Given the current and anticipated challenging conditions, organizations need to demonstrate a real sense of urgency in identifying and addressing obvious and non-obvious gaps in their supply chain. By using the right approach to suit readily available technology, organizations can quickly achieve these goals.
About the Author
Joanna Dobrzyńska
Business Solutions Manager, Comarch
