Doing business today is like playing a game of chess on multiple boards simultaneously, with the rules being constantly changed. New challenges in logistics, regulations, local markets, and whatever else create an unpredictable and unstable environment. Organizations can do nothing but adapt to this changing world. And in supply chain management, we must run twice as fast just to stay in place.
Here, we’d like to contemplate how an organization can cope with current difficulties when managing supply chains and what tools and knowledge can facilitate this struggle. Spoiler: the key to success is not just selecting the right IT platform but also adopting the correct approach to utilizing it.
But before we dive deep into this, let’s make a quick overview of the current situation to get a better understanding.
VUCA and BANI concepts
A particular turmoil is not new to this world. Starting from the 1980s, there has been the VUCA concept in use to describe the ever-changing environment. Standing for Volatility, Uncertainty, Complexity, Ambiguity, VUCA explained the post-Cold-War world and its shifts. The economists who suggested this concept, Warren Bennis and Burt Nanus, insisted on abandoning strict planning and established processes as inefficient and instead resorting to soft skills and emotional intellect to better adapt to the new world.
Forty years later, a futurologist, Jamais Cascio, introduced a new concept of BANI. Brittle, Anxious, Non-linear, Incomprehensible, this is the world in the second and third decades of the 21st century. Climate change, the pandemic, unpredictable events, and other challenges affect people and businesses worldwide, keeping them alert and ready to react to new challenges.
Naturally, adaptability has always been required, but today, the number of variables and the speed of entering those in various equations are going off-scale. For business, the BANI/VUCA world is becoming a stage where one must hold positions while constantly increasing capitalization and ROI.
Navigating industry complexities
In supply chain management, agility is about more than swiftly reacting to changes in orders or market trends. It's equally crucial to rapidly adopt technologies that facilitate efficient process optimization and decision-making. It’s also vital to maintain exceptional service levels while optimizing inventory or financial expenditures. The speed mustn't compromise quality.
Issues like capacity shortages, repair work at production sites, or alterations in supply routes exemplify how supply chains are intricately linked to global events and externalities. Incidents like a tanker getting stuck in the Suez Canal or the outbreak of an epidemic can throw the entire supply chain into disarray, necessitating immediate adjustments.
Central to these challenges is the strategic allocation and movement of resources, ensuring, for instance, that excessive amounts of raw materials or finished products aren't tied up in stock. Wins the one who not only reacts promptly but also does so effectively: minimizing financial expenses, optimizing inventory levels, and reallocating capital from excess stock into new, growth-oriented investments.
The intricacies of logistics extend far beyond the mere delivery of goods from Point A to Point B. Real-world unpredictabilities often compel businesses to maintain backup inventories akin to a “safety net.” This is where sophisticated models and analytical tools become invaluable.
Historically, IT platforms and algorithms focused primarily on optimizing individual segments of the supply chain, often overlooking the broader perspective.
Yet, with the advent of multi-echelon planning, a more comprehensive analysis of supply chains is now possible. This approach doesn't just consider the singular attributes of each component (like data or processes). It delves deeper, examining factors such as storage capacities, the pace of goods transit, lead time necessities, and intricate details of transportation routes.
However, technology alone isn't the silver bullet. It's equally vital to ensure that teams understand these models and algorithms are not just enigmatic "black boxes" churning out numbers. It's crucial to grasp the origin of this data and the precise ways these algorithms align with the overarching company strategy.
Only with this holistic understanding can we truly claim the full integration of information technology within logistical operations.
It all starts with the inventory
Inventory management extends beyond merely storing goods in a warehouse. It's a complex process where every detail plays a pivotal role. Both overstocking and stockouts can undermine a business's bottom line. In the interconnected world of business, errors in estimating stock levels can halt production, leading to significant costs and potential penalties.
Contemporary IT solutions can pinpoint the optimal inventory level tailored for each business, identify the root causes of discrepancies, and recommend targeted steps for optimization.
All this being said, in supply chain management, we have to adhere to a complex approach. It means addressing the challenges of multi-echelon planning and bringing together various departments, from procurement to production, in a single organizational unit. To manage inventory successfully, it is crucial to embrace current demand, supplies, orders for replenishment and facilitate their harmonization.
A solution tailored to your business
To effectively tackle current challenges in supply chains, we at Axellect suggest employing the robust SAP IBP solution, a powerful tool for in-depth inventory assessment and optimization. To leverage its capabilities to the fullest, we offer a complex, tailored IT service that is enhanced beyond mere software to bespoke customer analysis and roadmap.
Our customized inventory analysis includes:
- Inventory discrepancy calculation: we compare actual inventory against target levels to pinpoint variations;
- Identifying causes of discrepancies: we conduct a thorough analysis of chosen products to discern inventory level discrepancies;
- Material classification: we sort materials based on discrepancy causes to ensure a more precise analysis;
- Stock reduction potential assessment: we propose specific strategies to refine the inventory management process.
As a result, an organization will:
- receive recommendations for ideal inventory levels, complete with comprehensive justifications;
- understand the reasons behind deviations from optimal on-hand inventory levels;
- determine safe inventory thresholds and reorder points for every product.
The inventory guidance that Axellect offers is grounded in precise data and analytics. To reach the maximum accuracy in calculations and forecasts, we leverage state-of-the-art technologies (we do calculations with SAP IBP) and our deep industry expertise gained for 25+ years of supply chain planning and managing. Thus, we transform inventory management from a mere task to a gateway for business optimization and expansion.
Seeing in believing
To illustrate how a complex inventory analysis can help with supply chain optimization, we’d rather give a couple of examples from our practice.
Success story #1
For a large FMCG retailer, we executed scenario modeling and determined safety stock in volume by using SAP IBP. Via this calculation and analysis, we identified an opportunity for optimization, and it helped the company to reduce on-hand inventory by 17% while maintaining the same high level of service.
Success story #2
A large manufacturing company was experiencing excess stock, i.e., products remained unconsumed for 12 months. It required analyzing the causes of surplus inventory, both potential overstock and slow-moving inventory.
We at Axexlect did this job and identified significant potential to change the surplus inventory criteria and establish order control for products that meet the requirements. As a result, the customer service level was increased to 99% of the optimal level, while on-hand inventory was reduced by 15%.
Also, we checked the criteria that were used to identify surplus stock. This analysis helped us to uncover non-moving inventory and thus, allowed to change the criteria and point out other supplies that might soon become excess.
To sum up
In today's dynamic landscape, the significance of IT tools in supply chain management is more pronounced than ever. It's insufficient to merely "set and forget" a digital logistics platform. Modern systems should embody flexibility, adaptability, and be perpetually primed for rapid modifications.
Emerging planning algorithms, modules, and technologies are being developed not just to streamline existing tasks but to address future hurdles preemptively. As business processes grow in complexity and the rate of change accelerates, the array of potential scenarios—and their associated challenges—expand, demanding proactive foresight and solutions.