January 07, 2021 | Supply Chain Software
The past year compelled businesses to rethink their sourcing strategies as the COVID-19 crisis exposed the cracks in global supply chains. Amid supply chain disruptions, businesses have had to reassess inventory needs and management. Now, with a view to future-proof their operations, they seek ways to build an agile and resilient supply network.
As many supply chain leaders now get their voices heard in boardrooms, the consensus is to implement much-needed reforms in supply chain management. One of these is shorter supply chains that offer more resilience. Another one involves reassessing the effectiveness of the popular just-in-time or JIT model.
Designed to reduce costs and eliminate the need to store excess inventory, the JIT strategy relies heavily on a strong and efficient supplier network. The objective is to increase efficiency and reduce wastage by moving materials and components only when needed.
However, this strategy can be effective when each operation is synchronized with the subsequent operations. In case there is a sudden disruption, this process fails and impacts business operations, as seen during the widespread lockdowns in early months of the pandemic crisis.
Dealing with a disruption of the magnitude of COVID-19 has exposed the drawbacks of JIT, along with a lack of visibility into the supply chain. Too much focus on reducing costs meant this model failed to provide a steady supply of key products.
Enterprises that relied heavily on JIT realized they could not meet a sudden spike in demand. Plus, the absence of a Plan B for core suppliers aggravated the possibility of businesses running out of stock.
In the past, business leaders overlooked the need to review and introduce vital changes in the way they managed supply chains. After COVID-19, their focus has shifted from cost to risk management.
An increasing number of enterprises are looking to adopt a just-in-case supply chain model. This means that businesses maintain a safety stock to meet a sudden or unusual spike in demand. Safety stock also provides a shield against production or quality issues and unforeseen events.
In addition, enterprises realize the need to diversify their supplier base and reduce dependence on a few main suppliers or a single region. Diversifying can ensure a steady supply of key products, even in critical times. Many enterprises also plan to expand their warehousing footprint across different regions to ensure uninterrupted supply.
Supply chain leaders are concerned about the costs involved in maintaining and storing surplus inventory for a just-in-case scenario. Some enterprises may choose a hybrid model that can meet the inventory requirement as well as maintain the efficiency of JIT.
Others may prioritize risk management and adopt a just-in-case strategy irrespective of the extra costs involved.
One thing is certain in the post-COVID-19 times. Supply chain management will continue to evolve and assume paramount significance. Enterprises are likely to consider the pros and cons of different sourcing strategies as well as their changed business priorities to choose a strategy that best suits them. It is also the right time to invest in technology and choose a supply chain management software that can provide the much-needed, end-to-end visibility and resilience.