In June 2022, U.S. inflation reached a 40-year high. Although inflation has slowed since then, it continued to climb in January 2023, triggering fears that the Fed could keep raising interest rates throughout 2023. On the other hand, a slowdown in inflation could mean prices will gradually stabilize and we’ll avoid a recession.
What does all of this mean for manufacturers and distributors? In times of economic uncertainty, there’s one thing for sure: supply chain leaders must be able to pivot quickly.
Inflation and labor issues are squeezing margins. Higher interest rates and materials prices are increasing the costs of carrying inventory. And rapid shifts in market demand always leave someone holding excess inventory.
In short, there’s intense pressure on supply chain practitioners to do more with less. Here are three ways to protect your margins by enhancing your supply chain network design.
1. Use a digital twin to rapidly analyze new supply chain network design scenarios
A digital twin is simply a simulated version of your real-world supply chain. As you seek to optimize your supply chain, you’ll need to run multiple scenarios that project the impact of each decision. Should you explore nearshoring or friendshoring? Add more distribution centers? More micro-fulfillment locations?
With the right supply chain network design solution, you can evaluate many scenarios in minutes. Logility NDO enables you to improve your resiliency by continuously assessing tough tradeoffs between sourcing and distribution options, lead times, and logistics costs. By rapidly prototyping your supply chain scenarios, quantifying your costs, and measuring the impact on service, you can make responsible decisions that take all factors into account—which is increasingly important in an age of heightened scrutiny on corporate social responsibility.
2. Detect market shifts with demand sensing
The goal of demand sensing has always been to do better than traditional forecasting at short-term planning. The theory is that if the mid- to long-range past is the best predictor of the mid- to long- future (as is the belief in forecasting), then the immediate past will also be the best predictor of the immediate future.
That theory generally worked well—until the pandemic. Is there a supply chain stakeholder anywhere in the world right now who’s willing to use data from 2020-22 to project demand during 2023-25?
We can project the immediate future and detect market shifts, but we’ll have to think outside the box. We should all strive to:
- Build a foundation by incorporating data on trends such as housing starts, demographics, and Amazon and Google activity. This is where we must venture outside our own databases and see what clues we can gather from various corporate and government sources. A surge in housing starts may indicate there will be strong demand for the carpet staples you supply. A flurry of Google searches for “do it yourself car repair” may change your strategy as an automotive parts supplier.
- Enhance the accuracy of demand volatility forecasts by adding in causal factors. Causal factors are contributors to a particular event or outcome. Unlike the data from the ebbs and flows of trends mentioned above, some causal factors can manifest as drastic changes such as extreme fluctuation in channel inventory, unusual weather conditions and severe weather events, natural disasters, and health crises (such as future waves of a pandemic).
- Bring these insights into your sales and operations planning. Don’t stop at asking your planners to plug causal factors into their forecasts to generate a wider range of results. Make sure all your stakeholders are considering these insights as they formulate strategies for balancing demand, supply, and service levels. You’ll enable them to protect your margins and reduce working capital.
3. Evaluate alternative suppliers
According to a recent KPMG survey, 71 percent of global companies highlight raw material costs as their number-one supply chain threat for 2023. It’s not hard to see how higher costs will increase supply chain complexity. More and more manufacturers will aim to control costs by casting a wider net for suppliers. As formerly alternative suppliers become major players, their own supply chains will inevitably dry up—leading manufacturers to search even harder for alternatives.
Amid all this searching, how confident are you in your company’s ability to evaluate alternative suppliers quickly and accurately? And how will you optimize supply planning as your supply chain becomes an increasingly complex web? You can use forward-looking lead time analytics to identify areas of latency and identify appropriate remedial actions such as alternate shipping, alternate production, or creative sourcing solutions.
Learn more about supply chain network design
The supply chain environment is changing too quickly for you to wait months for a supply chain network design solution to go live—only to spend months more customizing your new solution. That’s why Logility taps into a history of innovation to recommend the exact set of solutions that will add the greatest value to the operations of each client. We then use a highly agile, prescriptive implementation approach to deliver value in weeks.