It has been a challenging time for logistics and global supply chains – the pandemic has disrupted processes and exposed vulnerabilities. Mathias Bosse is an expert on supply chains, and he has identified eight major challenges in supply chain management.
Supply chain management (SCM) is at the backbone of the world’s economy. When Covid-19 hit the globe, it revealed a lot of weaknesses and breakpoints exposing economies around the world to existential problems with stock outs in supermarkets being the most visual effect for end consumers.
But Covid-19 is not the only problem these days. Container vessels blocking the Suez Canal, container shortages, Brexit, trade wars, cyber-attacks – you name it! There are a lot of challenges for supply chain managers these days and they are here to stay.
Once more we are reminded that supply chains can be easily interrupted and how fragile these processes are. While doing our research for “The Supply Chain Management Startups Handbook” we have identified eight major challenges that needs to be addressed:
1. Leverage in Supply Chains
Higher costs, order cancellations or payment delays can easily push key actors towards insolvency putting supply chains at risk. Companies must not only monitor their suppliers for potential insolvency risk, but also be prepared to find other suppliers to make sure they have an alternative source for their supplies.
2. Labor Intensity in Supply Chains
Supply chains break when workers cannot go to work or cannot work in normal conditions. Despite the overall automation trend production and supply chain management significantly depends on human workers to operate. As the pandemic has shown, the bold vision of an autonomous supply chain is still far away.
3. Length and Inflexibility in Supply Chains
Very slow reaction times to sudden demand changes due to long lead times are causing disruptions of chains and stock outs. Too many organizations are still built around a very traditional approach that is rigid and does not allow for rapid changes as needed. Many companies have reacted with the adoption of Six Sigma, Lean Manufacturing, Kanban or other approaches. Still, they haven’t found the flexibility that is needed to quickly adapt to changing market environments.
4. (Too) Lean Supply Chains
Over the last decades the industry has moved towards more lean supply chains mainly associated with minimizing inventory and other cost-cutting, which resulted in supply chains depending on almost perfect foresight on future demands. As the pandemic revealed this leads to product shortages if sudden changes in demand occur. Operating in a just-in-time mode with just enough supplies to run under a “best-case-scenario” turned out to be a root cause for a struggling economy that experiences significant demand swings.
5. Vulnerability to Government Actions
Supply chains break or become inefficient if sudden changes to regulations occur. Trade shocks fueled by unilateral tariffs between the U.S. and China have wiped out three to five years’ worth of growth among global value chains in affected countries, according to a UN policy brief. Supply chain legislation aiming at the prevention of environmental damage or forced labor forces the industry to adapt processes or even switch suppliers to stay compliant.
6. Lack of Transparency
The lack of visibility masks vital risks to the chain and reduces the ability to react to visible disruptions. Unfortunately, supply chains were not designed with transparency in mind. Many companies and suppliers are hesitant to exchange too much information as this might undermine their competitive advantage or expose them to criticism. Furthermore, relevant information, e. g. details of upstream supply chain practices, may not even be collected or if it does exist, may be erroneous. Finally, the ROI for investing in transparency does not always satisfy near-term requirements. Upcoming legislation and consumer demand will change that and make transparency a differentiation in winning the consumer’s trust.
7. Concentration Risks
The entire supply chain can break if a key actor becomes inoperative or delays deliveries. Concentration risk becomes significant if companies rely on a supplier for 10 percent or more of its revenue or materials or on too many customers or suppliers located in the same geography. Concentration is often driven by economies of scale or the specific capabilities of a certain supplier.
8. Sustainable Future
Standing for more than 25 percent of global CO2 emissions supply chain management is one of the key areas for fighting climate change. Supply chain emissions are on average 5.5 times as high as a corporation’s direct emissions. Most buyers state that they are actively engaging with their suppliers to make a switch to renewable energies, however only 4% of suppliers had a renewable energy target in 2019.
Technology and innovations play a crucial role in addressing those problems and transforming the supply chains of the future into connected, transparent, resilient and sustainable chains. SYNAOS wants to make an important contribution and provides an exciting solution with its Operating System SYNA.OS LOGISTICS. It optimizes transport processes efficiently and, above all, holistically. The focus is initially on intralogistics, i.e. internal flows of goods and materials. They are a decisive factor in the supply chain, because intralogistics offer a very high optimization potential.
Less hardware – fewer emissions
Specifically, SYNAOS helps to distribute orders more efficiently to AGVs and other transport vehicles. Powerful algorithms react immediately to disruptions, cancellations and other immediate changes, which prevents expensive delays in the process (see point 1). At the same time, the software even looks into the future and anticipates, for example, delays that are yet to happen. In this way, SYNA.OS LOGISTICS can look for new solutions in time and immediately reorder transport orders – again and again. The workload can thus be distributed very flexibly. Sudden failures of workers as well as a general lack of manpower (see point 2) can be compensated better and faster. With SYNA.OS LOGISTICS customers can save up to 30 percent on transport vehicles, which reduces energy consumption and thus CO2 emissions (see point 8). The SYNAOS solution is a practical example that a software innovation can have many positive effects on intralogistics and thus also on the supply chain.
As a venture capital investor focused on B2B companies this is a field to be in and that is why we decided to focus on supply chain management technology innovations.
As a Venture Capitalist and Angel Investor our guest author Mathias Bosse is an expert on supply chains. He is also the editor of “The Supply Chain Management Startups Handbook 2021”, that is now available at scm-startups.com.
The handbook provides an analysis of supply chain startups in Europe and presents 215 companies from 27 countries. Leading industry experts have also contributed their input: SYNAOS’ CPO Lennart Bochmann provided the chapter that explains the optimal control of AGVs and the industry standard VDA 5050.