Creating predictability when supply chains are unpredictable
What do Barbie dolls, blue paint and bricks have in common? They are all products that are proving difficult to source due to ongoing supply chain issues, writes Emmanuelle Hose, Group VP and GM, EMEA, Rimini Street
For the manufacturing and construction sectors, it is proving extremely tricky to navigate such uncertainty and volatility. The construction industry is experiencing growth, but profitability is under pressure due to rising material costs and staff shortages. The manufacturing industry has always faced tight margins, but new challenges like fluctuating energy prices make it even harder to manage cashflows and deliver profitability.
Building resilience for more predictable supply chains
This situation is likely to continue well into this year, and the impact of this instability will likely only grow in severity. According to a report from the World Economic Forum, senior executives in operations and supply chain management expect the impact of disruption on corporate value to increase by 15-25% over the next five years.
The report also revealed that only 12% of companies are sufficiently protected against future disruptions in supply chains and operations, with the remaining 88% urgently needing additional measures aimed at building resilience. It is vital manufacturers and construction firms focus on areas they can be confident will help them build long-term sustainable businesses, and allow them to compensate for the current unpredictable nature of supply chains.
Many organisations are keen to build as much resilience as possible into their supply chains, to ensure they can cope with the continuing fluctuations – but this obviously comes with a cost. The pressure to embrace new and disruptive technologies to help businesses remain competitive is ever present. Organisations that moved online quickly or fast-tracked digital transformation projects during the pandemic got a jump on their rivals. Those that didn’t invest are now being forced to play catch up, but they face decisions about where to invest in these uncertain times.
Companies that have not already made investments in technology for supply chain innovation will do so soon: 23% of supply chain leaders expect to have a digital ecosystem by 2025, up from only 1% currently, according to Gartner.
According to an Ernst & Young survey of supply chain executives, 52% say that the autonomous supply chain – including robots in warehouses and stores, driverless forklifts and trucks, delivery drones and fully automated planning – is either here or will be by 2025.
Optimising assets builds predictability and resilience
Often the challenge for large organisations looking to find the funds for innovation is ongoing operations and enhancements, which can consume up to 90% of IT budgets. If such large amounts of resources are assigned to ‘keeping the lights on,’ particularly in complex supply chain environments, how do businesses free up resources to fund innovation? How do they build resilience into the supply chain for greater predictability?
One way to overcome this challenge is by optimising existing IT assets. This can help ensure business processes are streamlined to run efficiently and applications can interoperate with innovative applications at the edge of an organisation so that data can be shared across the entire infrastructure to give a single view of critical company information.
Many enterprise software vendors are attempting to convince their customers that this is not the right strategy and that they should move away from existing applications to the cloud equivalent of these systems. For some, this approach makes sense, but for many there is significant potential for disruption with this level of wholesale change – take the example of Travis Perkins where a failed replacement of its existing system lead to the disclosure of a £108m impairment in its 2019 year end results. Moving core enterprise applications, especially where organisations have built up significant customised functionality, is hard to do. Software vendors may want customers to adopt their standard cloud-based applications without the customisations, but as anyone running a complex supply chain with unique business processes knows, trying to unpick them can be highly risky.
So why take the risk? An alternative is to maintain the existing core enterprise applications, because they are stable, fulfilling required and essential tasks around HR and financial processes. Making wholesale changes risks suppliers not being paid and employees not receiving their salary. It is still possible to enhance and evolve these core applications. We have clients who are looking to integrate mobile into core HR and financial processes, so employees can register hours worked or book holiday. This is incremental innovation or process improvement that can happen within your existing application environment. These systems can also potentially be moved to a public cloud infrastructure environment, such as the one offered by AWS, Google or Microsoft. Yet, there can still be remaining challenges – how do companies ensure these applications remain operational? After all, if they do not move to the vendor’s cloud-based applications there are deadlines looming for the end of full support for many existing enterprise software applications.
One way to avoid this issue is to turn to third party support. By opting instead to maintain an existing ERP system with third-party support, companies can reduce their current IT spend and divert these savings to invest in innovative technologies that can help to build supply chain resilience. Sweating assets avoids unnecessary disruption to mission-critical business applications, and when there is so much disruption elsewhere, it can make good business sense to adopt the “if it ain’t broke, don’t fix it” point of view.