Pandemic- and climate-related supply chain disruptions have put pressure on firms to evaluate the sustainability of just in time models, according to Chris Laws, head of UK product and strategy at Dun & Bradstreet.
“There is going to be a big question placed on the balance point between optimised for cost versus optimised for resilience,” he says.
Many firms have “squeezed every ounce of efficiency out of their supply chains over the past 10 years” using just in time models but will be faced with a costlier option to build “complete nimbleness and resilience” through spreading the risk with multiply suppliers, adds Laws.
The past year has seen the global supply chain network contend with a myriad of disruptions, creating a hostile environment for global trade that is leading to increased logistics costs and backlogs.
“Logistics bottlenecks have created a new definition of on-hand inventory and just in time,” said Albert Douer, director of Darnel Group.
“Today we cannot trust any segment of the logistics chain. From trucks to ocean vessels there is no guarantee of if, and when, our raw materials will arrive.
“For now, just in time only works if your supplier happens to be next door, and even then, you never know if you are only pushing your risk back into your supplier’s own logistics chain. Just in time will return, but for years to come, we will probably hold on to part of that extra inventory we built during the pandemic.”
Maureen O’Shea, partner at KPMG, says there will be more black swan events forcing companies to understand the interconnectedness of its immediate supply chain and those beyond the company’s.
“[Businesses] will need to understand their interconnectedness, mapping out [the supply chain] and understanding its specific risks and the need to make business specific choices of what the mitigations are.”
De-risking supply chains
The growing number of vulnerabilities has meant many firms are focused on de-risking supply chains and placing a greater emphasis on digital investment to map out and mitigate risks, says Laws.
According to report by Dun & Bradstreet, 30 percent of senior leaders across the US and UK viewed digital transformation as the most important priority going into 2021,. In the US, 29 percent cited mitigating financial risk was a major concern.
O’Shea says data-led decisions have become even more important as the challenges faced “anywhere in any supply chain is different to the challenge that was there two years ago” and the instincts on how to mitigate the risk are no longer applicable in the current scenarios.
Alongside physical disruptions, a significant challenge for supply chains going forward, which firms will need to mitigate, is that customer demand and behaviour has changed, she says.
“What people consume and how they consume has shifted. The supply chain through the Covid-19 lens doesn’t need to get through just Covid-19, [businesses] need to reshape their supply chain to that new pattern of demand.”
The supply and operational planning (S&OP) process is more important than over as businesses pivot their business model following shifts in demand, adds O’Shea.