The introduction of “just-in-time” (JIT) supply chains—where suppliers deliver supplies as needed—freed up working capital and space for many businesses.
While this resulted in supply chains getting longer and more complex, especially when combined with outsourcing, off-shoring and out-of-country procurement, it also enabled organizations to realize many efficiencies—especially around costs and capital management. However, as we’ve repeatedly seen, disruptive events all too often turn JIT supply chains into “not-in-time” (NIT) supply chains.
The COVID-19 pandemic has been a huge disruptor to supply chains, though it’s hardly the first. What’s different with COVID-19 is its global reach and effect on nearly every industry. A series of surveys by the Institute for Supply Chain Management shows that 97% of respondents said their organizations were (or will be) affected by the spread of COVID-19. Three quarters (76%) of respondents reported reductions in revenue targets, with 23% being the average reduction.
NITs are bad for business. To build a supply chain resistant to disruptions that cause NITs, organizations must focus on four key areas: visibility, flexibility, insights and collaboration.
Restructuring supply chain operations catches NITs
Building a resilient supply chain requires companies to restructure their supply chain operations to gain end-to-end visibility and a thorough understanding of the entire chain. Who are your suppliers? Who are your suppliers’ suppliers? Do you have dual sourcing strategies? Are your trading partners digitally enabled? And so on.
It’s crucial to map the structure and stress test to identify risks and weaknesses across the supply chain. For example, 80% of the chemicals used by the European pharmaceutical industry originate in China or India. The dangers of such concentration became clear when healthcare systems worldwide were unable to meet the increased demand for personal protective equipment, such as masks and gowns—because they could no longer rely on Chinese suppliers that were themselves affected by lockdown orders. Alternative suppliers were also impacted, resulting in shortages.
Options can be expensive and complicated. One option is to increase inventory—an example of what we call “just-in-case” (JIC) production. For example, Novo Nordisk manufactures half of the world’s supply of insulin at its plant in Denmark. To ensure supply chain disruptions don’t cause shortages of the life-saving drug, it maintains a five-year reserve.
Alternatively, you can diversify suppliers so disruptive events don’t cause NITs that destroy the business. Or you can consider near-shoring or on-shoring some of your supply chain. Deciding what is the best option—or best combination—requires real insight into your business.
Cloud integration tools for the resilient supply chain
In addition to operational changes, organizations need to improve how information is exchanged across the supply chain. Cloud integration tools can help organizations derive meaningful insights to improve supply chain flexibility, collaboration and visibility. OpenText™ Business Network is a modern cloud platform that helps manage the full data lifecycle, from information capture and exchange to integration and governance. This allows for stress testing, insights and identification of alternatives—and enables these insights in real time.
And OpenText™ Trading Grid™ is a flexible, configurable digital backbone that organizations can use to optimize supply chain processes across the entire trading community. The platform helps companies connect to external trading partners or integrate internal business applications by leveraging insights into transaction and information flows to improve productivity and mitigate risk. And it’s the industry’s only unified integration platform delivered as a managed service.
Disruptions are a constant in business. Not all are as dramatic as the COVID-19 pandemic or the 2011 earthquake and tsunami in Japan. But you should always expect there will be unexpected events. With the right technology and planning in place, businesses can build and enhance resilience and get rid of the NITs.
Learn more about how OpenText can help you beat the NITs by building a resilient supply chain that can deal with whatever the world throws at you.