How to Manage Global Supply Chain Complexities in 2021
2020 forced many organisations to rethink entrenched supply chain practices. Nearly 70% of brands took more than three months to recover from COVID-related supply chain disruptions. The pandemic has highlighted significant weaknesses in current supply chain resilience. New supply chain strategies are required.
2021 requires more sustainable solutions with the flexibility required to thrive within a future crisis. We believe that effective use of electronic data interchange (EDI) is central to simplification and optimisation of supply chain management — and critical updates to EDI best practices have made this outcome far more achievable than many businesses realise.
By promoting a transparent flow of information at every stage, EDI enables companies to accommodate the intricacies of their specific supply chain relationships and create tangible optimisations. In effect, adopting EDI creates a solid foundation for effective planning into 2021 and beyond.
Here, we are going to explore the root causes of supply chain complexity, and provide practical advice on how EDI-enabled visibility delivers robust supply chain flexibility. Let’s get started.
Suggested reading: If you want to learn about turning supply chain management into a competitive advantage, check out our ebook — The Supply Chain Centred Business.
Step 1: Understand the root causes of supply chain complexity
Globalisation has been a principal factor leading to an increase in supply chain complexity for decades. But many of the practices built around global supply chains accentuate the challenges of managing such large systems during times of disruptions. Critical complicating factors include:
1. Overreliance on a single supplier
The past couple of decades have seen companies put increasing emphasis on lean supply chain processes and scrapping the redundancies that are vital to adapting to rapid changes in supply dynamics.
As part of the trend towards leaner supply chains, many organisations attempted to minimise their number of suppliers as a strategy for simplification. In the long term, this resulted in an increasing over-reliance on single sources of supply.
The disruptions caused by the U.S-China trade war and the pandemic highlighted the vulnerabilities caused by overly lean supply chains. As borders closed and shipping stopped, organisations across multiple sectors suffered significant supply chain challenges, including:
- 74% suffering from shortages of critical parts and materials.
- 74% experiencing delayed shipments and longer lead times.
- 69% having difficulties in adjusting production capacity in response to fluctuating demand.
- 68% experiencing difficulties planning amid volatile levels of customer demand.
Those companies that previously diversified their international supply chains in light of the U.S-China trade war were better able to weather these disruptions. Those that had not are now struggling to diversify their supply chain partners using outdated and inflexible supply chain management solutions.
2. The just in time (JIT) production model
Another facet of the trend towards leaner supply chains, the emphasis on just-in-time inventory replenishment, production, and delivery left companies less resilient to disruptions and dealing with higher levels of risk.
Throughout 2020, the primary benefit of JIT, efficiency through reduced flow time, was outweighed by its vulnerability to fluctuating volumes and materials shortages during times of crisis.
Operating on lean inventories and aligning orders for products and materials with manufacturers’ production schedules left businesses locked into static supply chain methodologies and unable to react to recent disruptions. As a result, 67% of organisations lost sales due to stockouts during 2020. Additionally, 69% were unable to balance stock between different warehouses.
3. SKU proliferation and a lack of flexibility
The struggle to increase their market share or tap into niche markets has resulted in many companies experiencing SKU proliferation. A form of product bloat, SKU proliferation is the result of companies adding products to their inventory to target smaller and smaller market sections.
The primary issues associated with SKU proliferation is the inability to accurately forecast demand over such a large product range and a lack of supply chain flexibility required to make proactive adjustments to production and sourcing ratios.
The reality is that companies who have created specific static supply chain streams for niche products are not sufficiently agile to adapt to the changing supply situation. As a result, 68% of companies have experienced difficulties in reconfiguring production lines and 69% are unable to scale production in response to changing demand.
Greater visibility is critical to supply chain resilience
Under the pressure of recent disruptions, a lack of end-to-end supply chain visibility caused 69% of businesses to face difficulties in supply planning due to lack of information on impacted suppliers. An additional 72% of organisations also encountered difficulties in end-to-end monitoring of their supply chain.
The lack of data as a solid foundation for strategic planning left companies unable to adapt to rapidly changing supply chain conditions. Particularly when seeking to manage complex supplier relationships, finding solutions that deliver visibility can enable the kind of strategic and tactical planning required for the future.
Step 2: Take on board lessons from 2020
Supply chain paradigms are rapidly shifting in the wake of the pandemic. Those companies who can best absorb the lessons of 2020 will be best positioned to create a competitive advantage out of these changes.
Lesson 1: Strategic partnerships
Supply chain partners need to move to a more strategic relationship instead of a purely transactional one. Strategic partnerships give companies more significant ability to modify and enhance their supply chain capabilities.
According to McKinsey’s research, companies that strategically collaborated with suppliers regularly demonstrated higher growth, lower operating costs, and greater profitability than their industry peers.
Lesson 2: Supplier diversification
Overreliance on a single primary producer is a significant supply chain vulnerability. Global supply diversification creates both resilience and flexibility at the cost of increased complexity.
Companies looking to move away from a single source of supply and the just-in-time fulfilment model must now reassess their risk tolerance to create enough of a buffer to absorb future disruptions.
Lesson 3: Supply chain digitisation
Greater digitisation creates a more robust and flexible supply chain. Outdated pen and paper methods collapsed under the pandemic’s weight, causing significant disruptions. Organisations are now scrabbling to adopt more robust digital supply chain management solutions.
Only 48% of shippers currently have systems in place to organise and access data for reporting purposes, and just 45% collect real-time data across more than half of their supply chains.
Lesson 4: Supply chain visibility
Greater supply chain visibility creates resilience through process optimisation. Companies with a properly implemented digital supply chain have the perspective to make better-informed planning decisions and develop more effective solutions.
An overwhelming 92% of businesses are taking steps to increase visibility within their supply chains. Increased transparency with suppliers and buyers has become a top strategy for creating supply chain resilience.
Step 3: Re-examine EDI and supply chain visibility
EDI sits at the heart of traditional supply chain management but has never fully delivered on the promise of supply chain simplification. But EDI has undergone several significant updates that can help businesses confront the challenges of 2021 and beyond.
EDI-as-a-Service trends bring together a number of cloud-based tools and managed services to create a single adaptable and transparent solution that is simplified by technology. Fundamentally, a hybrid and service-led approach to EDI simplifies supply chain management through greater visibility, wider adoption, and greater flexibility. Implementing an EDI-as-a-Service solution enables companies to make effective strategic and tactical choices within an unstable global economy.
The pandemic was highly effective at highlighting the vulnerabilities in global supply chains. EDI-as-a-Service represents a solution to these new challenges and complexities through:
1. Enhanced visibility
By digitising and standardising information flows, EDI solutions give companies visibility over their supply chains. EDI-as-a-Service enhances this visibility by enabling increased EDI-adoption within your supply chain and then delivering analytics capabilities with intuitive dashboards and a range of data reporting tools that simplify the process of access and reviewing critical supply chain information.
How this helps: Increased transparency allows companies to make better-informed strategic decisions based on real-time data. Access to a complete and accurate picture of their supply chain prevents companies from encountering supply difficulties caused by a lack of information on impacted suppliers. It also provides businesses with the agility to react to changing consumer demand.
2. Built-in flexibility
In a post-pandemic world, businesses struggling to transform their supply chain management options need EDI solutions that are as flexible and diverse as the supply chains on which they rely.
The reality is that critical supply chain data moves at the speed of the least able EDI user. EDI-as-a-Service offers a vast range of different types of EDI, protocols and standards. This variety of solutions massively simplifies onboarding new partners.
As an example, WebEDI options provide browser-based forms that allow users with little to no EDI experience to complete digital forms that automatically generate an EDI request. The backend technical processes are fully automated for enhanced simplicity and wider user adoption.
How this helps: Even companies with substantial in-house EDI expertise benefit from hybrid and EDI-as-a-Service options that reduce the barriers to use and accelerate effective deployment. In light of a greater emphasis on supplier diversification, the ability to accommodate multiple new partners with differing EDI sophistication levels is key to managing the complexities of post-pandemic supply chains.
3. Greater efficiency
Using EDI to optimise the exchange of information reduced costs through greater efficiencies. These efficiencies drive more significant profit margins. Increased margins allow companies to re-invest in their supply chain, creating a positive feedback loop that is crucial to continued success. EDI-as-a-Service solutions accentuate this benefit by increasing adoption rates and minimising the resources required to maintain your EDI solution.
How this helps: With 84% of companies looking to build more robust supply chains and improve crisis-preparedness, the savings generated by EDI can be reinvested to help create these capabilities.
Moving away from the just-in-time model and diversifying manufacturing options to increase supply chain flexibility comes with a cost. The optimisation savings EDI-as-a-Service offers can help offset those costs, enabling companies to build in greater robust flexibility.
Create closer relationships and double down on efficiency
Effective EDI provides the robust flexibility that 2020 demonstrated to be lacking in pre-pandemic global supply chains. Flexible EDI-as-a-Service systems bring all partners in a supply chain closer together through the transparent flow of information. Closer relationships and better communication result in greater efficiencies, driving up profit margins.
The reinvestment allowed by more significant margins creates a positive feedback loop of continually adapting efficiencies that enhance stability. The back-and-forth flow of information enables better informed, strategic decision-making based on supply chain specifics.
At Data Interchange, we’ve spent more than three decades helping businesses simplify EDI adoption and management, and avoid EDI implementation issues — and are pioneering many elements of EDI-as-a-Service solutions described here.
Greater flexibility and communication with supply chain partners are critical tools for managing global supply chain complexities for 2021 and beyond. Data Interchange is here to hand you those tools through hybrid EDI services, cloud-based EDI tools, set-up support and technical consulting. Contact us today to find out how Data Interchange can help you build the supply chain of tomorrow.