Breaking out of the volatility cycle
Volatility has come to define the recent past of supply chains, but greater depth of understanding is helping to smooth the journey to market
“If I had to put it in one word, what happened to supply chains last year was volatility,” says Vishal Patell, Senior Vice President Marketing & Strategy at CHEP, which is one of the world’s largest providers of pallets and containers and part of multi-billion dollar logistics company Brambles. The topsy-turvy world we have been experiencing of “15%, 20%, 30% growth in some sectors, and 40-50% downside in other sectors,” has led Patell to believe “that supply chains need to be redesigned to manage that much volatility” in the future, even as a new normal settles. “I see this as a very transformational moment,” he adds.
How do you take that that unique position you have in that supply chain and drive visibility between business partners, in a way that's going to help people with forecasting, holding and building inventories, but also managing this volatility downwards?
For CHEP “being in the pallet business, we have a role to play in that because … we call ourselves the invisible backbone of the supply chain. A lot of consumer goods that are sold around the world move on a pallet, and how do you take that that unique position you have in that supply chain and drive visibility between business partners, in a way that's going to help people with forecasting, holding and building inventories, but also managing this volatility downwards?”
Resilience, but how?
“Resilience has to be built into the supply chain,” says Patell, a consideration that has taken on extra importance as they are seeing “service level agreements that were a little bit lenient during the pandemic are now back up to being very, very tight. And that's happening while capacity in the … workforce, as well as transportation is still pretty bad. So now as a business, you've got to manage both … while at the same time ensuring that your customers get the product they need, when they need it, where they need it and, for you, at the right cost.”
How do you fulfil demand when you do it out of the back of a store, like Walmart's doing, or you through micro fulfilment centres, like Amazon and many others are doing?
Within consumer-facing businesses that challenge is only increasing, with the surge in demand for online shopping making “Supply chains more complex” as businesses ask “how do you fulfil demand when you do it out of the back of a store, like Walmart's doing, or you through micro-fulfilment centres, like Amazon and many others are doing? How do you make sure that your consumer doesn't go away empty handed, regardless of the channel they shop from? So, that's the bullwhip effect that supply chains are going to see as retailers vie to hold on to their share of wallet, regardless of the channel spend.”
This trend “Puts additional pressure on how the nodes work. If your traditional supply chain was operating out of a distribution centre, co-packer and the store, now you have storage and diversions happening in order to fulfil this e-commerce demand…. The complexity goes up because your assets start flowing in places they haven't flown with before,” all at a time when companies are also considering “how much safety stock should I carry, how much restocking needs to be done, and how pent up is this demand?”
Companies are trying to figure out do I need 100 SKUs just to satisfy my market? Or can I make do with 50, or 60, that helps me optimize my capacity
This is a lot of balls to be juggling, and is therefore going to rely on multiple tactics to tackle the issue from different sides.
On the one side, there are simple steps Patell sees brands taking relatively straightforward steps after the pandemic broke. For example, “There's a lot of Stock Keeping Unit (SKU) rationalisation going on. Companies are trying to figure out do I need 100 SKUs just to satisfy my market? Or can I make do with 50, or 60, that helps me optimize my capacity.”
On the other is the wider adoption of technological aids, principally automation and visibility support.
Lighting up supply chains
“Now more than ever, there is a need to leverage technology to improve visibility in goods movement in the supply chain,” Patell.
In the US alone we have over 100 million assets flowing at any given time, we can't light up every single one of them, but if we start lighting up portions of them … that will start to bring a new level of insights
With the inherent complexity mentioned above this is tricky and is going to have to be handled step-by-step, with CHEP looking hard at moving large-scale asset tracking into the digital realm.
“If we start tracking our assets and mass, and just in the US alone we have over 100 million assets flowing at any given time, we can't light up every single one of them, but if we start lighting up portions of them … that will start to bring a new level of insights into this visibility piece that I think we've not seen before.”
This is important as they are finding that “Understanding demand at a national level is no longer sufficient. You have to get into the regions, you have to get into the pockets,” to understand the interplay “down at a region, or even a sub-region level to make sure that we're putting our inventory in the right place, sensing that and responding to variability that might occur.”
Ultimately, it's a cost benefit equation, but we believe … that within certain supply chains, RFID is going to have a key role to play.
Critically, a number of technologies are reaching a stage of maturity that can really help this process, including “RFID tags, the increased coverage of 5G, the general connectivity piece in general, and cloud computing.”
Now for CHEP and Brambles, “Part of one of the new product launches we are looking at will be 100% RFID-enabled, and then also a percent of it will have more enhanced tags, that are able to do geolocation and things like that.”
“Ultimately, it's a cost benefit equation, but we believe … that within certain supply chains, RFID is going to have a key role to play. It's not the stigma of the of the early 2000s, where the infrastructure was getting in the way,” thinks Patell.
Increasing preciseness reduced the workload
Patell believes that RFID, among the other aforementioned technologies has a big role to play, as they provide a level of granularity that will change how efficiently supply chain operators can interpret and understand the data.
“I'll give you an example. When we let some of our assets out is it in the Kroger? Or is it in the Walmart that's right behind it? Is it in the terminals facility? Or is it the Sam's Club distribution centre that's right next to it? So, the more accurate these things are, the better it is going to be,” as it will drastically reduce “manual intervention … so we can then focus our intelligence analysts on analysing that data and converting that action as opposed to cleaning that data.”
The ability to have cloud computing and more accurate coverage is critical
Over time this capacity will help companies to break out of the volatility cycle by creating automated systems that can alert supply chain managers to risks as they are emerging and coordinate directly with the supply network. Throughout this process organisations need to ask “When the data comes back, you have to run them through algorithms, you have to make sense out of that to say, ‘Okay, what did I learn today?’ and the ability to have cloud computing and more accurate coverage is critical.”