With various economic indicators looking less bad than many feared, there are plenty of manufacturers contemplating whether their supply chain will cope with a potential upsurge this year.
After all, in most businesses there are few crimes worse than missing out on sales from not being able to keep pace with demand. The airlines and airports, and their ongoing capacity problems are a high-profile example of how things can go badly wrong if you misjudge how long it takes to reactivate your whole supply chain ahead of a bounce-back.
No doubt most manufacturers feel they are doing all they can to ensure the robustness of their supply chain. But I have to say in my experience few are doing all they should and may well come a cropper when demand picks up.
The first area that separates those that are strong performers from the rest, is whether the organization is simply managing its own supply points, or is it managing the whole end-to-end supply chain. Most do the former, but leaders in this area ‘look over the horizon’ beyond their immediate suppliers to their suppliers’ suppliers… in fact, the whole ‘end-to-end’ supply chain, including logistics and warehousing space, to model the E2E constraints and reflect the ever-changing environment.
Robust demand plan
If you are to successfully manage your whole supply chain, the two key components that are essential, but often missing, are a robust demand plan and adequate strategic plans.
Many demand plans internally lack credibility. For instance, many corporates have cultures that reward departments who set low targets and then overperform against plan, regardless of the consequences for other parts of the business. In addition, where plans are not reliable, other parts of the business second-guess it – for instance over-ordering stock because of previous systematic under-reporting of demand and over selling.
If you’re going to manage your whole supply chain, you can’t work on the basis of ‘demand plan plus guestimate’. Your demand plan needs to be unbiased, credible and widely communicated within your organization… and corporate behaviors that undermine accuracy, which invariably stem from senior behavior, need to be tackled..
Of course, the demand plan isn’t just about the short-term. It needs to be for 24-months or more if you are to be confident that your supply chain will cope if you are expecting a rapid demand increase or an acquisition, for instance.
Without this you will not know if your suppliers have the capacity or capability for your future plans given the long lead-in time, for instance for finding new people with different capabilities or buying capital equipment. Given the shortage of warehousing and lead times of up to two years, are your logistics partners going to cope? Do you know if there is a ‘gorilla’ somewhere in your extended supply chain who is vital for you, but not vice versa, that could thwart your plans through withdrawing supply or simply not increasing it?
Most importantly, given the future is always uncertain, do you know your demand plan for different scenarios that need to be modelled in the supply chain?
Being prepared for nasty and indeed pleasant surprises is the third key element for managing the whole supply chain – has the senior leadership team taken the time to identify different scenarios and discuss carefully how all parts of the business, and indeed your whole supply chain, would fare in each case?
From having advised numerous manufacturers, I can honestly say such discussions are the single most important factor to successfully delivering a long-term strategy, and businesses whose leadership fail to do this, usually from constant short-term fire-fighting, have little chance of managing their whole supply chain as they won’t see the problems coming until it is too late. We cannot predict the future, but we certainly can be preparing to ensure being in the best position to know how to react!
The ability to manage business partners, especially indirect ones, involves sharing data and discussing ‘what ifs’ based on your demand plans for different scenarios. But this is difficult for organizations who lack confidence in their own demand plans, and also for those too engaged with short-term problems rather than longer-term strategic planning.
Managing the whole supply chain end-to-end is vital for delivering a business strategy, and those that do it successfully are those manufacturers with leadership teams who have created the pillars for success – a clear strategy, thorough discussions on how different scenarios will impact the whole business, and a credible demand plan that is for at least two years, not just the next few months.
Les Brookes is a Partner at management consultants Oliver Wight EAME. Oliver Wight is a world leader in IBP consulting (Integrated Business Planning). Its approach is quite different from other consultancy firms. Its industry experts transfer knowledge to clients through coaching, mentoring and education workshops, so they learn how to make improvements themselves.