Eight major challenges for supply chain management

It has been a difficult time for logistics and global supply chains - the pandemic has disrupted processes and exposed vulnerabilities. Mathias Bosse is a supply chain expert and has identified eight major challenges for supply chain management.

Supply chain management (SCM) is the backbone of the global economy. As Covid-19 spread across the globe, the pandemic revealed many weak and broken points. Economies around the world struggled with existential problems, with empty supermarket shelves most visible to end consumers.

But Covid-19 is not the only problem these days: container ships blocking the Suez Canal, container shortages, the Brexit, trade wars, cyber attacks - just to name a few examples. What is clear is that there are many challenges for supply chain managers today. What is also clear is that the problems are here to stay.

Once again we are reminded that supply chains are easily disrupted and processes are vulnerable. In our research for "The Supply Chain Management Startups Handbook", we identified eight major challenges that need to be addressed concretely:

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1. LEVERAGE IN SUPPLY CHAINS

Higher costs, order cancellations or payment delays can easily push key players into insolvency, putting supply chains at risk. Companies not only need to monitor their suppliers for potential insolvency risk, but also be prepared to find other suppliers. This is the only way to ensure that they have an alternative source of supply for their goods.

2. LABOUR INTENSITY IN SUPPLY CHAINS

Supply chains break down when workers cannot go to work or work under normal conditions. Despite the general trend towards automation, production and supply chain management rely heavily on human labour. As the pandemic has shown, the bold vision of an autonomous supply chain is still a long way off.

3. LENGTH AND INFLEXIBILITY OF SUPPLY CHAINS

Very slow response times to sudden changes in demand due to long lead times lead to supply chain disruptions and stock-outs. Too many companies are still focused on a very traditional approach that is rigid and does not allow for quick changes. While many companies have responded to this by introducing Six Sigma, Lean Manufacturing, Kanban or other approaches. But they have not achieved the flexibility needed to adapt quickly to a changing market environment.

4. TOO "LEAN" SUPPLY CHAINS

In recent decades, industry has moved towards leaner supply chains (Lean SCM), mainly linked to minimising inventory and other cost reductions. This has made supply chains dependent on near-perfect forecasting of future demand. As the pandemic has shown, this leads to product shortages in the event of sudden fluctuations in demand. Operating in just-in-time mode with barely sufficient stocks for a "best-case scenario" proved to be one of the main causes of a struggling economy that is exposed to significant fluctuations in demand.

5. VULNERABILITY TO STATE ACTION

Supply chains break down or become inefficient when regulations suddenly change. Trade shocks triggered by unilateral tariffs between the US and China have wiped out the growth of global value chains in affected countries for three to five years, reports a UN policy brief. Laws to avoid environmental damage or forced labour are forcing industries to adapt their processes or even change suppliers to comply.

6. LACK OF TRANSPARENCY

The lack of transparency obscures key risks in the chain and reduces the ability to respond to visible disruptions. Unfortunately, supply chains were not designed with transparency in mind: Many companies and suppliers are reluctant to share too much information because they see their competitive advantage at risk or fear negative feedback. Furthermore, relevant information may not be captured at all or, if it is, it may be incorrect. Finally, the return on investment (ROI) in transparency does not always meet short-term requirements. However, upcoming legislation and consumer demand will change this. Transparency will become a differentiator to gain consumer trust.

7. CONCENTRATION RISKS

The entire supply chain can be disrupted if a key player delays or even completely fails to deliver. Concentration risk becomes significant when companies source 10 per cent or more of their revenues or materials from a single supplier, or depend on too many customers or suppliers in the same region. Often economies of scale or the special capabilities of a particular supplier promote concentration.

8. SUSTAINABLE FUTURE

Accounting for more than 25 per cent of global CO2 emissions, supply chain management is one of the key areas in the fight against climate change. On average, supply chain emissions are 5.5 times higher than a company's direct emissions. Most buyers say they are actively working with their suppliers to switch to renewable energy. Yet only 4 per cent of suppliers had set a renewable energy target in 2019.

Technology and innovation play a crucial role in addressing these issues and transforming the supply chains of the future into connected, transparent, resilient and sustainable chains. SYNAOS wants to make an important contribution to this and offers an exciting solution with its Intralogistics Management Platform, which optimizes transport processes efficiently and, above all, holistically. The focus is initially on intralogistics, i.e. on internal flows of goods and materials. They are a decisive factor in the supply chain, because intralogistics offers very high optimization potential.

LESS HARDWARE - LESS EMISSIONS

Specifically, SYNAOS helps to distribute orders more sensitively to AGVs and other transport vehicles. Powerful algorithms react immediately to disruptions, cancellations and other acute 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, the SYNAOS Intralogistics Management Platform can look for new solutions in good time and immediately rearrange transport orders - again and again. The workload can thus be distributed very flexibly. Sudden failures of workers as well as a general shortage of manpower (see point 2) can be compensated better and faster. The SYNAOS Intralogistics Management Platformalso saves up to 30 percent on transport vehicles, which reduces energy consumption and can thus reduce CO2 emissions (see point 8). The SYNAOS solution is a practical example of how a (software) innovation can have many positive effects on intralogistics and thus also on the supply chain.

As a venture capitalist focused on B2B companies, this is an area to get involved in. That's why we decided to focus on innovation in supply chain technology.