Contrary to general opinion, the causes of the supply chain disruptions currently being experienced worldwide were prevalent long before the Covid-19 pandemic.
The US-China trade war got the ball rolling and exposed the problem by highlighting the worldwide shortage of containers. There are many causes, for example, container ships from Asia are now too large to traverse the Panama Canal (20 years ago they were not), so they offload on the West Coast of the United States and are compelled to truck all goods to the East Coast. This has created long lines of container ships waiting for berths creating delays that never existed before – from days to weeks. Making the situation worse, trucking companies haven’t been able to hire back enough drivers to meet demand. The current war in Ukraine will further destabilize the global supply chain. It has already done that in some of the goods that they export, like sunflower oil.
Technology, or a lack of it, also plays a key role. A recent SYSPRO survey shows that only 45% of businesses have looked at systems to address supply chain disruptions and just 44% have investigated technologies that enable collaboration with external suppliers and customers. Instead, businesses have focused most their investments on inventory control and order requirements. The focus has been on internal efficiencies over external collaboration. While improving internal efficiencies is vital for any business, internal efficiencies won’t help if external challenges across the supply chain are not also addressed. Securing the supply of raw materials to keep the business going should be the highest priority. Without any goods to sell, the business will lose market share and potentially may close down.
In the middle of such uncertain times, the leadership should be focusing on prioritizing the risk and addressing the highest priorities.
A lot of blame has been attributed to many different causes, which raises the next question – are Lean and JIT manufacturing the cause of these supply chain disruptions?
Many individuals and organizations blame Lean and just-in-time (JIT) manufacturing for the situation we find ourselves in today. They contend that these practices encouraged and enabled extremely low inventories of raw materials and components across the supply chain without noticing that these were only sustainable when the supply chain was running perfectly in a stable environment. When the disruptions arrived, and many of them arrived almost like a perfect storm and expected deliveries were disrupted, manufacturers had to suddenly stop production due to material shortages, which had cascading effects all the way down the supply chain. The critical issue here is that we’ve still not recovered, and full recovery is still some way off.
The analysis is mostly on point; however, the blame does not lie with Lean. Far from encouraging bare-bones inventories, Lean recommends keeping a reserve of critical components and materials strategically placed along the supply chain to enable manufacturers to weather exactly this kind of supply chain disruption and continue operating.
Similarly, JIT manufacturing looks to balance supplier deliveries against the delivery of the product so that raw materials are delivered as late as possible but early enough for manufacture and delivery to be completed by the promised delivery date. The goal is to have the minimum amount of inventory on hand (plus a safety stock) to meet demand.
It is clear from these definitions that having less than the minimum required stock on hand will result in an inability to meet customer demand. While the goal remains having the minimum “safe” stock on hand, there will always be a requirement to have some safety stock in the system. The level of safety stock is determined by the confidence that the customer has in the supplier’s ability to deliver on time and in full. This confidence is often a function of the collaboration between the customer and supplier, and visibility that the customer has into the supply chain. Hence our surprise at the findings of the global survey above.
Any leadership team that believes that no strategic stock is required in the supply chain is responsible for mismanagement of the business – chasing short-term profit at the expense of long-term sustainability and exposing the business to risk during uncertainty is not a sustainable business model.
There’s no doubt that Lean can increase efficiencies which makes it tempting for the C-suite to push inventory as low as possible to increase profits. However, employing business practices without fully understanding their assumptions and likely effects is treacherous territory. For the business, it is a high-risk strategy for short-term gain with no upside if it fails.
ERP can help companies cope with Supply Chain
Lean and JIT did not cause this crisis and, when used correctly in concert with technology, these manufacturing practices can set up companies to not only weather the storm, but emerge as more competitive organizations once the supply chain gets back to normal.
To thrive amidst the current supply chain challenges, companies need an in-depth understanding of demand, inventory and the supply chain process for their own products. It’s important to know what customers actually need (quantity), not just what they want, because like everyone else they’re trying to hoard the components they require in case supplies dry up.
ERP platforms that are purpose-built for manufacturing can be integrated with analytics and AI software to do exactly this while also enabling transparent communication across the supply chain to iron out issues and enable manufacturers to prepare for looming shortages. The AI, for example, should flag any orders that are way beyond the normal demands.
In fact, a fully-integrated ERP solution enables manufacturers to tackle the immense challenges they face by optimizing their business operations, meeting and satisfying customer demands, and increasing factory output.
For example, you can plan your factory based on fixed orders, understand exactly what the customer demand is, capture that demand in the system and see precisely what needs to be made and what components are needed to do so. This means you can verify all the data you need to make accurate buying and manufacturing decisions. In these uncertain times, focusing on the critical issues (like ensuring that you meet your fixed orders) is crucial to keep the business going.
Industry-built ERP solutions give manufacturers and distributors control across every internal function of the supply chain to confidently manage, engage and optimize the manufacturing process to be agile, adaptive and resilient into the future. Visibility and control of the supply chain will require some specialist tools and investment in collaboration with the suppliers, and this was not evident from the global survey.
How SYSPRO ERP helps you gain control of your supply chain
The manufacturing supply chain has moved from being a cost-reduction engine to take center stage in the battle to offer superior customer experience and deliver competitive advantage. SYSPRO’s ERP solution for supply chain management enables manufacturers to tackle challenges they face by optimizing business operations, satisfying customer demands and meeting factory output. The industry-built ERP solution gives manufacturers the control they need across every function of the supply chain to manage, engage and optimize the manufacturing process.