The COVID-19 pandemic has exposed the vulnerabilities and deficiencies of the lean, just-in-time global supply chain model, and companies must now decide how to move forward.
Pandemic-related shutdowns, geopolitics, labor shortages, and even weather have had a significant impact on supply chains all over the world, leading to supply chain bottlenecks, increasing costs and disruptions. In response, organizations are trying different strategies like onshoring vendors and vertically integrated supply chains.
Here's what lies ahead for the just-in-time supply chain model.
Supply chains past and present
Disruption has always been a part of supply chain management, and now that the world has grown even more unpredictable, just-in-time supply chain models can be a liability.
Pre-pandemic supply chains typically focused on procuring raw materials and components for the lowest cost possible, regardless of their point of origin. Enterprise systems such as supply chain management systems and ERP software could usually accurately predict order fulfillment time frames. The raw materials and components may have required longer lead times because they sat on containers on the ocean for weeks while en route to their final destinations, but supply chain managers could generally rely on this predictability.
Now raw material manufacturing disruptions, bottlenecks at ports throughout the world and imbalances with supply versus demand have made the old strategies somewhat obsolete. In addition, costs are rising rapidly along with global inflation, which is further undermining the just-in-time model's appeal.
Today's supply chain managers must rethink their supply chain models to better reflect today's realities.
Current supply chain strategies
Today, organizations are onshoring many vendors that they had previously acquired from overseas. They are finding that the cost savings they gain from sourcing from the world's lowest-cost providers is outweighed by the lost revenue and increasing costs. In other words, many supply chain and procurement managers are willing to pay more to get product faster or more predictably, which can increase profit margins in our world today.
Vertically integrated supply chains are also becoming more commonplace as this new reality unfolds. Many organizations are acquiring raw material providers if possible or building their own in-house competencies across the supply chain.
Another trend to mitigate these pressures involves data and analytics. Organizations are extending their data visibility further into the supply chain with both their vendors and customers. They are integrating with customers' systems to better anticipate demand and with their vendors' systems to better predict material or component availability.
Supply chain and procurement managers are also diversifying their vendor base. Many had relied solely on one or two vendors for their supply chains, which worked fine prior to 2020. Since 2020, this strategy concentrates risk among too few vendors. Now procurement managers are more likely to increase their roster of alternative vendors and backup providers.
In addition, supply chain managers are investing more heavily in their people. Past supply chains centered on the flow of goods and materials, but today's supply chain leaders also need to consider more carefully labor's impact on supply chains. The Great Resignation, labor shortages and workplace health concerns have made human capital management more important than ever for supply chain management.
The future of supply chains
Technology still plays a key role in this evolving supply chain landscape, but supply chain leaders need to change the way they think about enterprise technologies and use them in the best way for our current circumstances. ERP technologies and supply chain systems were largely created prior to 2020, so the more successful organizations are using technology in a way that reflects these new realities.
An effective digital strategy that invests heavily in new business processes, human capital management, change management and data integration is critical to succeed in this new environment.