Trying to predict what the future supply chain will be like is as futile as trying to predict what Donald Trump will say next.
That is not to say that we cannot review trends and see patterns in the way that future supply chains are progressing, however there are so many variables affecting supply chain efficiency that it is not simple to predict which will drive change more significantly. One thing is sure though, one size fits all supply chains will lead to a business’s demise.
When we talk about trends we are talking about? At a macro level there is significant volatility across the world, unstable trade tariffs and significant shifts in political allegiances such as Brexit lead to uncertainty in established supply chains, affecting costs and freedom to trade. Global shifts such as a rising labour cost in China mean that what is today an attractive proposition for offshore manufacture may become relatively less attractive as a place of low-cost manufacture, to be replaced by the next emerging market. Consumer spending habits are shifting, increasing demand for more SKU variety and desire for products to be delivered straight to the door all lead to increasing complexity and uncertainty in our supply chains.
So, with all this uncertainty, how can a business best prepare for the future of supply chains? The answer interestingly is simple. When the only certainty is that supply chains will require more complexity and face unpredictable shifts, the only sensible option for businesses is to ensure that their supply chains can adapt to this change, rapidly effectively and nimbly. The first step is to understand that traditional methods of optimising your supply chain once will be a thing of the past. Examples all over the world across multiple markets have already shown that fracturing your supply chain into customer facing segments can significantly reduce inventory and improve time and cost to serve. But in order to achieve this, successful businesses will need to act fast, or ideally have already started.
So, how can I prepare for change? We believe that other than early preparation there are 4 main areas which will determine successful supply chains within FMCG, and rather more morbidly for those ignoring these shifts will determine which businesses cannot compete.
Let us start with fracturing or splitting your supply chain. Traditional supply chains have a one-size fits all mentality, however in order to ensure the right level of service for ever-disparate customer groups, businesses should look to develop multiple supply chains to meet varied demand. Essentially by shifting the focus of the supply chain to be more customer centric and tailored to meet the customer segmentation demand volatility and needs. For example, high volume low demand volatility customer can be serviced by more traditional supply chains, where lower volume, higher demand volatility will require a higher skill base ideally situated closer to the end customer.
Customer demand volatility against volume is one way to segment customer groups, however consideration of what requirements the customer demands may drive different segmentation to ensure each segment has a fit for purpose supply chain. Understanding your customer needs, what drives cost in your supply chain and what affects your ability to meet those demands will help shape how you should segment your supply chains.
Embracing the power of new technology is critical to ensure agility and speed to react to changing environments. Whilst discussing Industry 4.0 there is still a significant portion of the FMCG professionals who relate technology implementation to historic ERP integration projects taking years and costing millions. This is, however, not the case. There are a host of agile technology software which have been designed as a modular compliment to existing systems, which can tap into vast computational power and solve or optimise even the most variable and complex supply chain problems.
Adopting technology in your supply chain first requires a business to forget about technology. The initial step must be to map your supply chain from your suppliers, to your customers customers and identify where are the pain points. Only once these areas are identified should solutions in technology be sought. These solutions should be specific and fit for the purpose of solving that problem.
Think about your mobile phone, everyone has a host of applications which they use daily, designed to meet a specific purpose. We as the user utilise apps to solve very specific opportunities. The applications are made by a host of vendors, often do not communicate with each other, but are important to ensure we have the functionality which we require from our phones. This is how we should consider technology in our supply chain.
The ability to rapidly adopt new technologies and leverage their power to influence decisions made by supply chain teams will be critical to surviving in such a dynamic environment.
In order to manage and rapidly adopt multiple supply chains across different customer segments the role of the Supply Chain management will shift. They will be leaned upon much more to offer flexibility and rapid adoption of technology and collaborate cross-functionally.
Firstly, the traditional functions of IT and Capital project teams will need to be considered holistically. Technology adoption is not just software or machines, it should be across both. Thus, IT and Capital project teams will need to consider solutions as a collective. The supply chain function and optimisation will involve multidisciplinary teams rather than single functions. Much more integrated and customer facing, forging inter functional partnerships rather than siloed thinking.
The Supply Chain Manager will be more of a Supply Chain Architect, able to wield technology to embrace change and act nimbly to meet changing demands with a more innovative thought process.
COMMUNITY – YOU SCRATCH MY BACK, I’LL SCRATCH YOURS
Lastly, and probably the largest shift will be the ability for a business to identify partners with other businesses, using shared resources and use of third party assets to flex and add low cost adaptability. One example is shared warehousing. Rather than all elements of the supply chain holding a level of stock, retailers for example would hold the stock and suppliers would manage the level of stock in that warehouse. Eliminating the bull whip effect and lowering the overall inventory needing to be held in the Supply Chain.
So, in order to ensure you are setting yourself up for the future businesses must:
Oliver North; Head of Pollen Technology
First published in Inside FMCG: