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Balancing efficiency vs risk: The yin/yang of manufacturing and supply chain management

Author: Anne Krupke, Engagement Manager, Arbela Technologies

Just like there’s no such thing as “one size fits all,” in the 21st century supply chain, there’s no such thing as “one speed fits all” or “one mode fits all.” Supply chain management (SCM) is unique to each industry, and often to each company in each industry.

There is a commonality shared across every supply chain, however, and that’s the “yin/yang” of efficiency and risk. How can supply chain, distribution, and manufacturing companies ensure they’re moving at top operational speed and maximizing each spend (efficiency) while ensuring compliance, security, and safety (risk)?

This question is even more pressing recently as manufacturers have looked to run more efficiently, adopting lean principles as much as possible (i.e., “have only what you need when you need it”). But businesses that excelled in these principles and strategies now may have found themselves struggling due to unprecedented supply chain disruptions caused by COVID-19.

Some days, it feels like we have to throw out efficiency and focus solely on risk, but where will that leave us once we adapt to the New Normal? Before we answer the ultimate question for SCM—how do we strike the right balance between efficiency and risk—let’s explore some challenges fueling the discussion.

APCQ’s Supply Chain Planning Blueprint for 2020 presents the eight most common supply chain challenges:

  • Supply-demand discrepancies
  • Planning for constant change
  • Centralizing master data
  • Understanding planning inputs
  • Providing customers with greater flexibility
  • Improving response and cycle times
  • Gaining visibility across the supply chain
  • Optimizing resources for efficiency and to avoid interruptions

At Arbela, we believe that solving these challenges comes down to a few key factors: understanding the data behind them, staying focused on customer engagement and satisfaction, taking a more tactical approach to risk mitigation, and leveraging new technology.

Understanding the data

Gathering and interpreting the right datasets can help identify areas for improvement in existing lines-of-business as well as provide a solid foundation for targeting new revenue streams, or even entirely new lines-of-business. Some of the possibilities include:

  • Tracking vendor and production lead times to accurately quote delivery dates to customers
  • Gaining accurate cost information to:
    • Understand what true margins are and perform price optimization
    • Identify areas in production/procurement that are driving cost variation and improve process efficiency
  • Understand true production capacity, as well as understanding true demand — not only is production run efficiently, but the plan is focused on producing the right products/services
  • Gaining the ability to create and analyze what-if scenarios in the supply chain to remain flexible and adaptive as the current landscape changes

Improving customer engagement and satisfaction

There’s no downside to improving customer relationships, especially in challenging times where customers may have to deal with longer lead times and greater uncertainty.

For traditional OEM manufacturers, CRM (customer relationship management solutions, such as Microsoft Dynamics 365 Sales) is not necessarily something heavily invested in – but now could be the right time to do it. As uncertainty increases, improved communications can be pivotal to customer retention and advanced marketing tools can provide insights into new revenue streams.

Additionally, e-commerce and CPQ (Configure, Price, Quote) tools can improve customer satisfaction by empowering customers with more flexibility and insight. For example, e-commerce “self-serve tools” enable customers to see potential ship dates before ordering, get real-time feedback about order status, and provide them with alternatives if a disruption in the supply chain has caused a stockout.

Bonus: customers using such tools to improve their own experience can give you greater understanding of customer demand – for example, do customers regularly remove a certain option from a configurator once they see the increase in price?

Tactical risk mitigation

Firstly, risk mitigation in and of itself is a strategic consideration, especially for companies that are running more lean. However, 2020, by introducing a new kind and new level of risk, has taught us to make some tactical adaptations that can fuel strategic progress in reducing overall risk.

A simple option is to add “buffer” in our plans – increase our inventory levels a bit here, create a build-to-stock plan for longer lead time items, add buffer margins onto lead times, etc. A more powerful option can be to leverage scenario planning – the exercise of identifying the most impactful variables in your business and imagining the most likely (or most impactful) scenarios that could occur within your business in the next year or other timeframe. Once you have identified the scenarios, build a plan for what your business would do in each situation and use the feedback to adapt more rapidly to future changes.

Forbes has a great article on this topic: Learning from Covid: How To Use Scenario Planning To Prepare For Future Uncertainty.

Leveraging new technology

As a Microsoft Partner focused on furthering every customer’s strategic plan with the proper technology, the last part of APQC’s Supply Chain Planning Blueprint report was particularly relevant as it states that about two thirds of their report’s respondents plan to implement new technologies and capabilities this year. Some of the technologies being used to strike a balance between efficiency and risk include:

  • AI/Machine Learning: improve forecast accuracy by using AI and Machine Learning to automatically create connections between business-drivers that you not easily spot with the “naked eye”.
  • IOT (Internet of Things): collect shop floor data automatically from IOT sensors (run rates, uptime/downtime, temperatures, and other variables) and leverage the aforementioned AI/Machine learning to move towards predictive yield and quality in the production process. In particular, IOT will give real-time access to OEE (Overall Equipment Effectiveness) in production and allow businesses to not only be aware of problems occurring on the floor but even analyze and predict trends before problems happen.
  • RPA (robotic process automation): keep your staff lean and reduce process cycle times by automating web processes with RPA.
  • Blockchain: gain increased visibility into your supply chain to be notified earlier when potential disruptions are occurring and make early decisions about how to adapt.

As stated at the outset of this blog, improving efficiency and reducing risk are often seen as competing forces in supply chain management and manufacturing. Some companies even view them as mutually exclusive, seeing making improvements in SCM and production as introducing risk, period.

But with the right tactical technology and the right strategic partner, you can strike a balance between efficiency and risk that concurrently protects and builds your business. Contact us to find out more.