Pounded by chronic supply chain disruptions, companies from Walmart and Target to small manufacturers are frantically exploring ways to prevent inventory catastrophes. But many are far too dependent on limited supply sources, creating a now frequent vulnerability that is shaking even retail giants. The solution? Examining every link in the supply chain to expose preventable shortages of parts, resources, and products. Companies must think ahead and diversify their supply chains, says ketteQ CEO Cy Smith.

Today’s supply chain operators must have a plan for everything. Every node and link in the supply chain needs a backup plan. Every source for supplies needs a backup plan. And every scenario for disruption needs a backup plan.

Can’t get your products out of the L.A. ports? How will you get them delivered? If, like Walmart, you are unexpectedly dealing with a warehouse fire, where is your next closest supplier? If the country where you source a key product ingredient falls victim to a geopolitical crisis, like Ukraine, where can you turn? What is the risk mitigation strategy that gives you alternatives in every step of the supply chain?

We often hear from companies that they don’t want to have more than 25% of their revenues tied to any one source. The same principle should be true for supply chains, said ketteQ CEO Cy Smith. There should be a strategy to systematically plan for how many supply alternatives might exist and what those alternatives are so there is no single point of critical risk.

Just like investing, the key to lowering risk is diversification.

Powerful Pitfalls

Companies and supply chain operators can’t think about forecasting and demand planning the way they once did.

Retail giant Target recently announced it would take a short-term hit on profits after taking aggressive steps to mark down unwanted inventory and cancel orders in the face of a slump in consumer demand for certain products.

During the pandemic, consumer appetite for products, like those for home offices and home repairs, soared, and flush with government subsidies, consumers spent more with retailers. A natural contraction in spending as the pandemic waned was inevitable yet may not have shown up in legacy forecasting models soon enough or with enough accuracy.

Forecasting systems reliant on formula-driven spreadsheets and Excel workbooks are often no longer agile enough to account for the sudden shifts and unprecedented turns now commonplace in today’s global supply chain, said Smith. Siloed supply chain operators looking to sell a dire forecast to a numbers-driven CFO may still not have enough leverage or buy-in within today’s corporate environment to make a strong enough case for immediate action.

Systems for assessing risk and forecasting demand must evolve. It may not show up on a CEO dashboard that a company only has two suppliers for an important material or only one country where the majority of certain product is sourced. How did so many companies become convinced that relying only on China for so many of their supplies was an acceptable risk, for example?

Simple Solutions

Perched at the helm of modern supply chain success is Amazon. Reportedly using systems that deliver 90% forecasting accuracy, Amazon manages more than 500 million SKUs and onboard some 3,000 new suppliers a day. At that volume, any error gets compounded exponentially, sending a ripple effect through the entire supply chain, so forecasting is crucial, said Smith.

Advances in technology are also more readily available. Robotics in manufacturing is revolutionizing labor capacity. Companies once reliant on cheaper labor in Asian countries, for example, are seeing tremendous advances in the automation of production. You see robots loading and unloading trucks, eliminating the need for pallets, and saving space inside of trucks. With the price of labor going up, there is now an incentive to develop automation and robotics, eliminating the need for human labor across multiple functions.

The onshoring trend also is gaining steam but is still years away from replacing offshore manufacturing and labor. A Wall Street Journal article covers the results of an economic model that clearly shows the impact of what happens when a single, large global supplier has a crisis – and the benefits of diverse supply chains running through a large number of countries. Yet, reshoring is not the answer, the article contends. In the face of today’s chronic black swan events, faster solutions are needed.

Diversification throughout every aspect of a supply chain, taking advantage of technological advances, and beefing up forecasting accuracy are now crucial to every supply chain strategy.

ketteQ, the only digital platform for supply chain planning and automation that is built-in and deployed on Salesforce and AWS clouds, offers a full lineup of forecasting and demand planning capabilities, offering a single-pane dashboard and real-time analysis.

If you are ready to diversify and bring your supply chain operations up to full capability, we are here to help. Reach out today.