SUPPLY CHAIN
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Internationally, many companies are taking new approaches, implementing strategies such as regionalisation and nearshoring.
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THE SUPPLY CHAIN DOMINO EFFECT
So, how did we get into this mess when the pandemic and all the disruptions have been around for a few years? There are many reasons why, but let’s focus on two main procurement models so we can learn from this.
• JUST IN TIME (JIT) • BUFFER STOCK
Both open you up for risk and failure
Many businesses have been working with the JIT (Just in Time) Model mainly due to market competitiveness. Relying on vendors is based on the end inventory model, not how fast the inventory moves its way through. This model works if everything goes to plan. The risks occur when it doesn’t go to plan such as what we are seeing now, with all the disruptions across the entire supply chain, from components, manufacturing, on the water and now on land. These disruptions cost you across all touchpoints in turn increase COGS, potentially outweighing the profits you have made or could have made on those products. This model not only poses a risk to your customers if you cannot deliver on time, but also the loss of revenue and your reputation. The other model being used is you or your vendor/manufacture hold buffer stock in case of a disruption. This can potentially create the problem of stock stagnate between these disruptions. The risk here is firstly a financial – the cost of storage, the cost to avoiding SLOBS and/or repurposing your stock, potentially writing of stock, all these together you have possibly already priced yourself out of the market. This is where we have seen businesses shut due to stock issues. Think of supply chain like a game of dominoes: one piece that stumbles or falls will either impact the upstream or downstream of your supply chain – impacting the entire game. Shipping costs alone have increased more than tenfold, which is scary when you think that globally 90 per cent of goods are shipped by sea. These costs have been absorbed in the past, if it’s only short term, but not in today’s environment. We are seeing around 25 per cent+ (depending on the industry) being passed onto the consumer, and it won’t stop there. The demand chain is becoming impossible to plan. If you’re analysing data from the past five years, or even two years, you will see a bullwhip effect, significant peaks and troughs. So, how do you set your minimum and maximum levels of stock holdings when you don’t know what you don’t know? That is why these two models are not sustainable for the future and now a lot of businesses are starting to rethink their supply chain. Let’s look at how businesses are starting to rethink their supply chain.
COLLABORATION AND INNOVATION
Internationally, many companies are taking new approaches, implementing strategies such as regionalisation and nearshoring. Regionalisation is the spreading of factories – moving them closer to the consumer by spreading their manufacturing footprint over various www.incleanmag.com.au 47