With global supply chain disruptions at an all-time high, companies are having to source alternative supplies within their pricing structure to meet end-user demand. Beyond this, the war in Ukraine continues to have a strong impact on the manufacturing industry, with more disruptions imminent as it continues.
To account for inflated prices and material shortages across the manufacturing industry, alternate product modifications have played a role in addressing these challenges. To effectively mitigate the effects of disruptions and optimize resilience, organizations must adequately assess risk across their supply chain, establish alternate sources of supply, and implement effective spend management solutions.
Assess Risk Across the Supply Chain
First and foremost, manufacturers must assess risk across their supply chain. This is crucial for identifying risks and deciphering the value chains of all products. Moreover, as interest rates and inflation are expected to rise further, a supply chain risk assessment would help standardize processes to identify, analyze, evaluate, and mitigate supply challenges. By the end of 2023, we anticipate interest rates will level out. However, inflation is only expected to drop to four percent in the United States, a couple percentage points above where it was pre-pandemic.
It should be recognized that disruption can come from anywhere, and manufacturers need to be prepared with complete visibility when this occurs. Business networks provide track and trace solutions that deliver an added level of visibility, as they’re fully integrated in the overall planning, production, and fulfillment processes of an organization.
These solutions can help companies connect with a multitude of suppliers, logistics providers, equipment repair vendors, and other business partners worldwide. Additionally, these solutions make it possible to avoid costly peer-to-peer connections, shifting support to center on n-tier supply chain visibility and collaboration.
Identify Alternate Sources of Supply
In a recent SAP survey, business leaders said their current supply chain issues stem primarily from global political unrest (58 percent), lack of raw materials (44 percent), and rising fuel and energy costs (40 percent). Only 31 percent cited inflation as a major contributor. Furthermore, 50 percent of business leaders expect reduced availability of raw materials in the United States in 2023, so we should expect many manufacturers to implement preemptive tactics to combat future shortages.
Here are some of the tactics organizations are implementing:
- A shift to “just in case” supply chain management. Nearly two in three companies (64 percent) are moving away from “just in time” supply chains to a “just in case” scenario by increasing the amount of inventory they store. In fact, 63 percent say the United States should adopt this approach to overcome potential supply chain crises. When it comes to the “just in case” strategy, it’s a double-edged sword because companies will have to spend more to stock more inventory.
- Leveraging of business networks for proactive sourcing. Another effective approach is to assess risk and identify alternate sources proactively, leveraging the visibility and connectivity offered by business networks. These networks also enable buyers to onboard suppliers quickly.
- Diversification of the supply chain. Organizations are switching up their suppliers ꟷ and not just to counter inflation or disruption. From the U.S. perspective, supplier diversity is higher on an organization’s radar than in other parts of the world. This is largely due to an increase in consumer demand and state regulation, such as California’s supplier diversity legislation. Beyond this, leveraging multi-sourcing helps to create flexibility and mitigate the effects of unprecedented risks. During the pandemic, organizations failed to adopt a true multi-sourcing strategy, as they were often sourcing from the same region. With the right network and visibility, making supplier diversity a priority in procurement is achievable.
Leverage Spend Management Solutions
Digitalization helps manufacturers be more efficient. When technology solutions are implemented, organizations have greater time to focus on strategic priorities, including diversifying suppliers, working toward sustainability goals, and achieving other business objectives. This is why spend management solutions are on the top of every CFO’s agenda, especially in the shifting post-pandemic workforce.
Geographical dispersity – defined as the physical dispersion of group members across geographically distant locations – has necessitated the use of technology solutions to improve and ultimately streamline business processes, including procurement and supply chain.
One way manufacturers are doing this is to use software technology for scenario planning. This helps decision-makers identify a wide range of potential outcomes and impacts, evaluate ways to respond, and manage potential outcomes ꟷ both positive and negative. Organizations can decide upon what templates and formalized frameworks for scenario planning make the most sense for their teams to implement. This tactic can also reveal cost-effective solutions because executives have more insight into potential impacts, as well as the cash flow they could gain by mitigating potential risks.
Ultimately, in today’s uniquely volatile environment, manufacturers have to be agile and adaptive in their approach to addressing disruption. It is only once businesses have a strategy in place to overcome these challenges as they appear, that they can be on the right track for a brighter future, where they’re capable of optimizing resilient supply chains.
Gordon Donovan is the Global Market Research Director, Procurement and Supply at SAP.
