How to Solve Supply Chain Disruptions — It’s Not What You Think
As 2019 wound down, who would have predicted that how to solve supply chain disruptions would become one of the top headlines? Especially throughout the next three years? Not just in trade publications, either. Supply chain disruption has become something that all of us see in the headlines every day: online, in newspapers, and in magazines. The topic has become the subject of documentaries. There are even podcasts dedicated to the issue.
Shortages and disruptions have been at the forefront of everyone’s minds. Supply chain disruption has been blamed for many things:
- The shortage of toilet paper and disinfectant wipes at the beginning of the pandemic
- The inability to find the laptop you wanted when remote work began to rise in popularity
- Car dealerships across the country with empty lots, empty showrooms, and year-long waiting lists for new vehicles
- Gas at record-high prices
- The outrageous price of lumber to build that deck you always wanted in the backyard
- The furniture store that doesn’t seem to have any new furniture for your renovations — and doesn’t know when it might be in stock
- Your fast-food takeout bag that doesn’t have any of those ketchup packets in it
- Most recently, baby formula is missing off the shelves of nearly all stores.
What Are Supply Chain Disruptions Blamed On?
Rising demand gets part of the blame. When millions of people suddenly find themselves working from home, of course, there is going to be a rush to buy new laptops. Early in the pandemic, there was also hoarding of products like toilet paper.
After we were through the worst of the pandemic and shortages remained, we found new culprits for supply chain disruption. Transportation, logistics, and scarcity of materials were to blame. Microchips for vehicles, labor, lumber — the list of rising demand for products and people go on and on.
Black Swan Events and Supply Chain Disruptions
In 2021, the Ever Given and its 17,600 containers blocked the Suez Canal for six days, causing an epic lineup of ships. Last November, the lineup of container ships anchored off the coast of California hit 109, an all-time high. The ships waited their turn to unload at the Ports of Los Angeles or Long Beach. Before the pandemic, these ships could sail right into the harbor. It’s not just those massive cargo ships bringing in all the goods from overseas. National logistics have been a problem. In October 2021, the American Trucking Associations estimated the U.S. was short 80,000 truck drivers.
In 2021, lumber smashed all-time record prices, and home improvement stores were often sold out. It must be that lumber shortage…
Rising demand and logistics challenges may be there, but they are not the real reason why we have been living through supply chain disruption. For example, look back to 2015, and you’ll see a similar red flag raised about a shortage of truck drivers. Freight being transported was ballooning, yet the US The country was nearly 100,000 drivers shy. Do you remember empty shelves through 2015? The same holds true for shortages in raw materials. The lumber companies have plenty of trees available to process.
How Procurement Can Help Explain Supply Chain Shortages
To understand the underlying cause of what’s been going on, you need to be plugged into the world of procurement.
Our CEO, Edmund Zagorin, published an article in Supply & Demand Chain Executive. In it, he makes the argument that procurement capacity is the root of the problem.
He explains that we’ve repeatedly encountered the scenario where the speed of selling cycles in a market has picked up due to increased demand. Yet the process required to complete purchase order approvals is so complex and dependent on manual actions that procurement teams are overwhelmed.
By the time they’re ready to go with an order, the supplier has sold to another organization. When this is repeated, an inflexible approval process creates what appears to be a shortage. This, in turn, causes those selling cycles to be even faster, compounding the problem.
In the Supply & Demand Chain Executive piece, Edmund uses an example from an Arkestro customer operating in the automotive space. This company processes an average of 900 purchase orders every week. An exception (such as a price hike) would require an additional approval process for each of those 900 orders.
Even if that manual process were to take just one minute per order, that’s 900 minutes or 15 hours. Or almost two full working days in the week for someone on the procurement team—assuming there’s someone even available for that additional time. The likely outcome is that at least some of those orders end up being late, kicking off a self-perpetuating perceived “shortage.”
How to Solve Supply Chain Disruptions
How can organizations solve supply chain disruptions?
There is a result because of the demand on procurement and additional review steps. In fact, the additional time required for manual review steps has a big ripple effect throughout the supply chain. This includes delayed customer orders (resulting in empty store shelves) and lower profitability, and it also contributes to inflation.
It can be addressed through automation and Predictive Procurement Orchestration. Companies that can adopt automation to replace some of their manual procurement processes have the opportunity for a massive value creation opportunity.
By using predictive machine learning, game theory and AI like Arkestro, procurement teams can add speed, agility, and visibility into processes. Added speed, agility, and visibility helps put a halt to perceived shortages and supply chain disruptions.
Technology can evaluate potential threats to your supply chain. Solutions like AI-enabled mapping, outlier detection, price alerts, and even evaluation of potential cyber threats will solve these problems. And the best part of Arkestro? You don’t need to remove tools and apps you already use. Arkestro can pull in the data from all of your AI procurement tools and put it into one place.
Curious to see what else Edmund had to say? Check out the article, and reach out to us for a demo if you have more questions.