2 minute read

Out of Stock: How Economic Disruptions Are Reshaping the Supply Chain

Steve Lavenski, Senior Manager of Operational Excellence

The pandemic, geopolitical policies, labor shortages, surging oil prices and port congestions have global supply chain networks in a strangle hold. The heavily outsourced “just-in-time” business model is at its breaking point with upstream production constraints leading to shipping delays which will continue to cascade into out-of-stock situations and inflated pricing for the holiday season. Big box retailers are actively navigating current supply chain disruptions by forming digital alliances with their suppliers and some have even started chartering their own ships in efforts to secure inventory levels. The additional costs incurred to ensure product availability are being quickly passed on to consumers in the form of price inflation.

A lack of visibility is often a root cause of supply chain issues

Certainly, increased visibility is a key to unlocking the log jam. In the past, data integrity issues and a reluctance to share data has been commonplace resulting in decisions based on different understandings of the same facts. Now, the availability of real-time data enables full transparency into the costs associated with business decisions and allows companies to avoid the hazards of the unknown. As more businesses realize the old way of balancing supply and demand will no longer suffice and digital transformation is required to survive, they will invest in the latest technologies that enhance inventory visibility and enable collaborative problem solving with both their suppliers and customers enabling them to be proactive and more agile through future disruptions.

Governments are now stepping in to address supply chain bottlenecks

Expect governments to introduce new global trade standards that would require manufacturers, suppliers and wholesalers to collaborate and share item data through a unified digital platform. This would enhance transparency and traceability to inventory levels across companies, as well as track the movement of the inventory throughout the interconnected supply chains of the world all the way to the end consumer. The platform would likely be powered by AI to optimize and unify item demand forecasts, display real-time location data, and empower the decision makers who are able to cross-collaborate and resolve potential risks to the supply chain before they occur.

Other avenues and new horizons

Another avenue to address the rising costs and lack of availability of outsourced product is to domesticate as much of the upstream manufacturing and raw materials processing as possible. This would mean opening new manufacturing sites and distribution centers, which would likely be powered by green energy, sophisticated automation and smart technology in order to reduce the costs associated with reshoring. The supply chain network of old is quickly transforming into smart supply chain networks as we have seen with the rise in micro-fulfillment centers and dark stores that service grocery customers. Top retailers are always evolving and seeking new ways to meet customer needs, and in return they will retain customer loyalty by optimizing service levels across their physical and digital channels.

By embracing the latest wave of digital transformation, companies that can deliver the right product to the right customer at the right time at the lowest costs will feast while others will starve, struggling to match supply with customer demand. Out-of-stock products, high prices and shipping variability will turn customers off. Digital investments will pay off over time. Winning companies will be able to refocus their resources on higher value-added processes supported by advanced technologies. The end game of digitalizing the supply chain is to achieve resilience, operational readiness, continuous improvement and eventually self-sustainment.

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