Supply chain predictability remains a holy grail of sorts to manufacturing operations — it is something many organizations aspire to but few actually achieve. Companies that aim to make this dream a reality understand the stakes: As rising consumer expectations and omnichannel distribution networks continue to align with one another, supply chain predictability becomes increasingly more important.
Software can help foster that union. Solutions that support supply chain activities act as an organization's central nervous system, allowing it to respond to peaks in demand, shifting market conditions, or strategy pivots that minimize disruptions and downtime. Fewer interruptions yield more predictable operations, allowing organizations to focus on core business capabilities.
Historically, companies that wanted more control over their supply chains would invest in both hardware and software, running projects to determine how effective each option was. The solution would remain in place until new innovations or upgrades emerged, and then the cycle would repeat. This traditional approach demanded significant capital expenditure, but it was feasible because of the slower rate of change.
Today, changes occur at a rapid pace that renders the status quo obsolete. To stay competitive, businesses must rely on a more agile system.
Learning from the Past
A number of solutions are gaining momentum in the supply chain space because they solve problems that plagued older systems. Software as a service, for example, is ideal for predictability because its costs are fixed and its cloud capabilities basically eliminate the possibility of downtime. The automated technical upgrades of SaaS offer dependable security that allows solutions to rapidly scale to meet a sudden increased need.
While SaaS is perhaps the best option available, it isn't a perfect alternative. Organizations still need teams to support the solution internally and help users extract the most value from it. In addition, companies should account for time, upgrade costs, and new features because that rarely are included in the cost of software. Drawbacks aside, SaaS solutions provide sufficient predictability to a supply chain that creates marked improvements over time.
Predictability can be a self-regulating engine that adjusts for the future based on past results. Consider the utilities industry, where bills might be spread evenly throughout the year. The amount of each bill could change slightly based on the information gathered from the previous payment period, but those adjustments will shrink as the utility company gets a better idea of a family’s energy consumption. That consumption will remain relatively consistent, but any surprises are easier to handle because they are spread over a longer period of time.
Therein lies the most valuable aspect of predictability. Companies can compile and process historical data to create greater efficiency over time. As supply chains generate mountains of data and systems deepen their artificial intelligence overlays, the algorithms that guide predictability will crystallize — and big data will yield even bigger benefits.
The Forecasting Formula
Predictability is a somewhat vague concept that depends on three different factors. More time allows for more predictability because it gives companies more context. If you only plan weeks in advance, for example, seasonal changes are virtually invisible. It's only when you put those weeks in the context of the rest of the year that trends emerge.
Increases in size also add predictability to supply chains. The demand for an item in one of your stores might fluctuate wildly, but clear trends emerge when you examine that same demand for 100 stores. The bigger the scope, the easier it is to account for unexpected surprises. In the same vein, the Dow Jones index might fluctuate over the course of the year but remain quite consistent over an extended period of time.
The known future is the final factor in determining predictability. Retailers should never be surprised by Black Monday, and e-commerce operations should always plan ahead for Cyber Monday. These events are going to happen every year, so it helps to look behind when planning ahead. Past outcomes do not guarantee the future, but data-centric supply chains have come a long way over the past few decades. By leveraging these data points, you can come away with more informed decisions and greater predictability.
The Next Link in the Chain
Making predictions involving your supply chain can occasionally feel like divining, but it becomes more of a science with each passing day. To improve predictability in your own supply chain, take these three steps:
1. Map the known future. The onus is on supply chain strategists to find areas where their companies can mitigate risk. Could areas of an organization become outdated or inflexible at some point? Replace them with agile and predictable ecosystems that can quickly respond to internal and external forces. To accomplish this goal, supply chain strategists must take the long view.
It is impossible to tell when a disruption will arise that your organization will need to embrace. It could be new technology or a new feature that elevates the industry standard, but it will be essential to remain competitive. If you lack the budget to adjust in the current year, your reaction time will be delayed by months while competitors rush ahead.
Change is the only constant, so set your organization up in a way that gives it flexible access to future features. Focus on what you do know and plan accordingly, whether it's as specific as Black Friday and Christmas or as broad as hurricane season for the Atlantic Coast. Predictability allows you to adapt quickly and capitalize on innovations that can catapult your company to the top.
2. Control cash flow. Operationalize as many capital expenditures as possible to regulate cash flow. This traditionally means the amortization of capital expenditures, but that puts leaders in a corner by requiring ongoing amortization for each future cycle.
Consider the decision between buying or leasing a car. Most people assume that buying the car is the more attractive option, but that might not be the case. Thanks to rapid innovations in electric vehicles and vast improvements in battery technology, your vehicle will be out of date long before the odometer hits 500,000 miles. Leasing gives you access to the latest features in safety, comfort, and efficiency. In an environment of accelerated change, leasing a vehicle allows you to stay ahead of the innovation curve.
We recently worked with an organization that struggled with internal processes. Although we determined that an upgrade was the best course of action, the company had to wait until its next budget cycle to consider the investment. The same problem plagued Target’s attempt to expand into Canada; the move failed because of supply chain inefficiencies that would have taken the company years to address. A tight grip on cash flow makes it easier to handle surprises or inconsistencies.
3. Plan for the long term. Too many organizations rely on Band-Aids without solving underlying issues. Supply chains must be able to absorb ebbs and flows, and predictability is like a shock absorber that allows your company to scale and adjust accordingly.
Back when cellphone users paid by the minute, some companies would allow their customers to roll over unused minutes from one month to the next. When you have an accurate idea of baseline patterns in your supply chain, you can absorb any discrepancies that arise. As your supply chain becomes more predictable, your capacity for absorption increases.
It would be easy for supply chain strategists to spend their time putting out fires, but that approach makes planning more than a few months ahead impossible. Eliminating these problems for good takes a future-focused mindset.
Manufacturing organizations will always contend with supply chain surprises, but the pursuit of predictability remains vitally important. Disruptions and delays have no place in the modern supply chain, and the companies that can effectively minimize them will enjoy major advantages over their competitors. Strive for predictability and remain focused on the factors within your control, and you'll be ready for whatever life throws your way.
Vito Calabretta serves as senior vice president of global operations at Tecsys, a provider of supply chain management solutions to the healthcare and complex distribution markets. In this role, Vito leads the service delivery team and champions Tecsys’ customer-for-life philosophy. He is a seasoned business leader with extensive experience in partnering with customers to shape and deliver supply chain and ERP solutions across a variety of industries.