Supply chain bottlenecks: ‘It’s been nuts’
Consultants who specialise in supply chains are having a torrid time.
As companies around the world grapple with bottlenecks, shortages and burgeoning demand, supply chain management has moved to the top of corporate agendas like never before.
Chief executives need short-term solutions to the immediate problems so they are seeking advice on strategic changes that will allow them to reassure their boards that pandemic-related problems will never recur.
“It’s been absolutely nuts,” says Brian Higgins, head of KPMG’s US supply chain and operations practice.
According to a McKinsey survey of senior supply chain executives late last year, 92 per cent had already taken steps to improve their resilience, mostly by increasing inventory of critical components and shifting to multiple sources of raw materials. Nearly 60 per cent adopted new supply-chain risk management practices, and many companies are looking to improve their analytics .
“There’s a huge question of how do you get the right data in the right place,” says Daniel Swan, who co-leads McKinsey’s operations practice. “A lot of clients have more data than they know what to do with,” he explains . “They need help to get real time transparency.”
Just as banks were forced to invest in consolidated data streams and live risk dashboards after the financial crisis, this year’s supply chain problems have prompted other companies to invest in risk management.
Washington DC-based Interos is seeing huge appetite for its comprehensive mapping and monitoring services, which can track 400m companies and provide real-time warnings of potential bottlenecks and sustainability issues. The consultancy has grown from 53 people to 300 in two years, and was recently valued above $1bn.
“What has changed is that management consultants have moved from reactive to proactive,” says Jennifer Bisceglie, Interos chief executive. “This is not just logistics. This is understanding who your customers are . . .[plus your]suppliers, and who their customers and suppliers are. Sometimes, the bottleneck is three or four [tiers] away.”
Corporate clients are also asking for help in determining how many supply chain issues stem from changes in demand. The pandemic has seen consumers shell out more and more on services and less on goods — reversing a 60-year trend.
Between the first quarter of 2020 and the same period in 2021, US spending on durable goods shot up 32 per cent, and spending on non-durable goods rose 9 per cent. It is not yet clear whether this shift is permanent or temporary.
Some clients have responded by wanting assistance in improving their forecasting, so that they can meet at least some of their demand growth by producing the right products in the right places.
KPMG’s Higgins says clients are redesigning their planning processes to give 120-day visibility, instead of 30 to 60 days’, but need advice on what kinds of digital technology can improve data inputs and analysis.
Others are stepping up their capital spending and have hired consultants to help them locate new factories and distribution centres, or re-engineer their existing ones, to boost overall output and resilience.
Where once supply chain management was mostly about cutting costs, many CEOs now want help balancing the competing demands of improving resilience, cutting carbon emissions and keeping costs down.
“How do you design a supply chain where, five years from now, we meet our sustainability goals, we are resilient and we can live with the cost?,” asks Joe Terino, who heads the supply chain practice at Bain. “It’s all about trade-offs.”
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He is working with consumer goods companies to redesign and standardise their products and manufacturing equipment. The goal is to get away from country-specific products and make it easier to shift production from one factory to another in times of crisis or when demand spikes.
Consultants are also being asked to help with automation projects, particularly in the US where labour shortages are acute. Most newly built facilities are already highly automated. But companies are having to decide when it makes sense to retrofit existing warehouses and distribution centres.
For example, some can be equipped with automated vehicles that bring employees to the right place to pick up orders, then lift them to the right height and help them find what they need.
“The return on investment is pretty attractive. Your workers are more efficient, you have less downtime from safety issues and the workers aren’t making mistakes,” Terino says.
However, even as consultants plug away at these resilience and sustainability projects, another challenge looms. “A lot of companies have been in survival mode at the expense of cost efficiency,” says KPMG’s Higgins. “There is a building and pent up need to come back to cost efficiency.”