A New Perspective On The Future Of Supply Chains

Ajit Menon

Recently, I talked to a senior business architect of supply chain at a major consumer packaged goods (CPG) organization about his project of digitizing the core. I wanted to hear his perspective on the next steps for the program. He paused and said, “We are in extraordinary times. Who could have imagined us, locked in our homes, as we face an invisible enemy? It has us closed off from family and friends, and we all crave escape and a return to our normal lives. Just-in-time purchasing has been thrown out the window.”

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Amazon’s marketplace, where independent sellers now are responsible for more than half of sales, quickly ran out of items that had become scarce at grocery stores and drugstores, like hand sanitizer and toilet paper. Amazon said it would stop accepting shipments to its warehouses of items other than groceries, baby care, and health and hygiene items in order to restock those as quickly as possible. This has strained production at CPG manufacturers.

Digging deeper, I found that trucking shipments to grocery and discount retailers were up 56% on average between March 15 and March 19 from the comparable week of 2019, according to freight-tracking technology provider Project44. The average daily volume was 17% higher than the peak week of 2019, which was the week before Thanksgiving.

The increase in trucks delivering to suppliers’ and retailers’ warehouses and directly to stores may be contributing to delays at loading docks. Surging volumes mean longer wait times for drivers picking up and dropping off loads. Those lines are exactly what the industry has long been working to avoid. Retailers, meanwhile, are overriding the sophisticated algorithms that say how much of what products they should buy after seeing how those models failed to account for the recent demand surge. Instead, retail executives are talking directly to manufacturers and making decisions in real time.

We all know the reason for this sudden surge is the pandemic, but what delayed the response? The answer lies in a supply chain built on the premise of low-cost arbitrage, loose labor laws, and products coming predominantly from one part of the globe. This, I believe, is under threat and about to be dismantled.

Japan is already investing close to $2 billion to help companies set up shop outside of China. There is a lot of noise in other countries, including the US, for taking a new look at their supply chain strategy. Every country is looking at ways to be self-sustainable so that human capital losses can be eliminated or reduced before help arrives from far-away supply resources during a future pandemic.

As with all process changes, supply chain orchestration will require:

  • Software to be more than a system of record and provide risk analysis and run simulations, enabling manufacturers to understand and prepare for supply chain shocks.
  • Manufacturing bases in home countries to increase, as countries will look to invest in protecting themselves from future shocks. This means people would have to be retrained and redeployed for more high-skilled jobs
  • Investment in better infrastructure for faster communication like 5G via cloud-based applications will gain momentum.
  • There will be increased investment in smart-city technologies for better crisis management.
  • There will be increased investment in security, as countries become more protective of their patented technologies.

I shared my thoughts with the senior business architect. He acknowledged my views and asked me to identify Value Now vs. Value Later projects. Value Now projects aim to implement these ideas in the company’s current ERP platform, and if that’s not possible, move them to Value Later projects, which can happen after a software upgrade project.

I am very confident that, as with all crises, this one will make the world a better place, although the initial path will be bumpy and difficult.

For another perspective, see Three Steps To Sustain Supply Chain Operation In Crisis.

Ajit Menon

About Ajit Menon

Ajit Menon is a Principal architect/Director at SAP, with nearly 25 years of experience in a global capacity, leading Fortune 50 organizations on business strategy, transformational design mapping, and innovation solutions. Ajit is a member of the SAP Business Transformation Services team, specializing in areas including SAP Supply Chain Management, business intelligence, SAP S/4HANA, the Internet of Things, and blockchain technologies as well as infrastructure lifecycle management, data archiving, business process modelling, and reengineering.