The world’s perception of the supply chain has changed drastically since the onset of the COVID-19 pandemic brought shortages of everything from toilet paper to ketchup. Now, as the world’s attention has begun shifting away from the pandemic, another global issue has taken hold: inflation. Annual inflation in the U.S. was under 2% in 2020, soared to 7% in 2021, and has reached over 8% so far in 2022. And it’s not going away anytime soon.
It isn’t the first time organizations have had to navigate near-constant flux and it won’t be the last. But this time around, they come to the table with greater experience, more collaborative workflows, and better tools than they had even two years ago.
THE IMPACT OF INFLATION ON SUPPLY CHAINS
As a result, in many ways, the ongoing inflation we’re experiencing today is just as—if not more—disruptive for the supply chain industry as the COVID-19 pandemic was. Even the most basic product has thousands of components to it, and missing just one key item can cause significant delays in product getting to store shelves. Even worse, in industries where product is highly perishable—like life sciences and food and beverage—these delays can cause product to become completely unusable, creating supply chain waste that increases costs at a time when leaders—and especially CFOs—are looking to reduce unnecessary expenses.
There’s no easy solution. To combat these delays, many companies have chosen to carry more inventory, increasing their warehousing and storage costs. But as consumer spending tightens in the face of runaway inflation, many of these companies now have an excess of inventory on hand, causing them to reduce orders and prices in order to clear inventory. This impacts both the business’s bottom line and creates even more significant challenges for planners looking to balance supply and demand.
Historically, supply chain planners have used Excel to manually create dozens of scenarios to try to model the future. But these processes lack the complexity and current data to be usable in today’s digitized and highly disrupted world. To navigate the modern supply chain landscape successfully, planners need the ability to run hundreds of scenarios that span the end-to-end supply chain and leverage real-time data to ensure up-to-the-minute accuracy. Leading companies operate supply chain planning engines that are constantly planning and re-running scenarios based on new assumptions around cost, inventory levels, and expected inflation as changes occur. It’s critical that organizations invest in tools that allow them to be evaluating scenarios constantly and adjusting plans to ensure product gets into the hands of consumers in the fastest, least expensive way possible.
EMPOWERING THE SUPPLY CHAIN PLANNER
According to a recent McKinsey report of senior business leaders, by October 2021, inflation was considered one of the biggest perceived risks to growth, outpacing COVID-19.
By encouraging collaboration and employing technology that can automate many of the repetitive or mundane tasks required to run a supply chain successfully, planners are able to focus on the more complex tasks at hand and think creatively to leverage both their experience and augmented intelligence to solve these challenges. This combination of machine learning and human knowledge ensures supply chains are powered by humachine intelligence—a powerful mix of data-driven insights and human contextualizing that results in resilient, agile supply chains. With this in place, planners are able to focus on tomorrow’s opportunities versus firefighting yesterday’s challenges.
CREATING A MORE AGILE AND RESILIENT SUPPLY CHAIN
To successfully navigate these disruptions, leaders must empower their supply chain practitioners by investing in solutions that enable them to focus on what matters most—getting product to consumers profitably—and back their decisions with powerful data-driven insights. Only then will they be able to create a supply chain that is agile and resilient enough to stand up to surging inflation and the next series of disruptions.