Are you someone who could use the help of an AI (or just more help, period) to keep things running more smoothly across your supply chain? If so, then you’ll want to listen to the discussion I just had with Ansgar Thiede, Vice President of Data Science for Körber Supply Chain Software, and Justin Velthoen, the Product Director of Warehouse Management Systems at Körber Supply Chain Software.

They have been looking at ways that AI can be applied in the warehouse and broader supply chain a lot lately, and they’ve been involved in the training of some AI tools. So, they have a great grasp on what role AI is already starting to play in these environments and appreciate the larger role it will soon need to play for you to be able to do your job effectively.

In our nearly 45-minute conversation, I learned…

• The most prevalent uses of data science and AI in warehouses and other supply chain environments today, and the types of AI techniques used most often to support these use cases.
• What you and your operations managers, engineers, IT teams and other colleagues will need to do to ensure any AI tools you utilize deliver their promised benefits.
• Why you should consult with data scientists as you’re developing your AI strategy, even if you ultimately utilize low-code/no-code AI models.
• What you can do to make AI feel manageable to your team and drive AI tool acceptance by your management, IT, and front-line teams.

We also had a great discussion about…

• Where it might make sense to leverage generative AI models throughout the supply chain, whether in a warehouse or distribution center or perhaps even over the road or in a factory. (The potential value proposition might not be what you expect.)
• How easy it can be for shift workers in warehousing and supply chain environments to learn some of these AI applications, and what contributes to fast adoption.
• How much humans will need to remain in the loop when AI is used for forecasting or labor planning.
• What types of decisions could/should be fully automated, and how much risk there is when automating macro decisions versus micro decisions.

Toward the end, we did a deep dive into how AI and data science can be used to adjust your slotting logic to improve velocity, safety, and overall operational planning. Ansgar and Justin also shared their thoughts on whether an AI model used for slotting could be applied to other functions, such as picking.

Right before we wrapped up, they called out one big thing that could hinder you from deriving benefits from AI and explained what to do about it so that you can extract value from AI. It was quite an interesting conversation, so I hope you’ll listen to it now:

You can also download and read the transcript here. Or you can download the MP3 to listen to their advice when you have time later today:

Why, When, and How You Should Be Using AI in Your Warehouse

And if you missed my past conversations with Körber Supply Chain experts about warehouse trends and voice technology, you can catch up here:

• Wondering How to Improve Warehouse Operations? Not Sure If Any Single “Solution” Will Work Like You Want? Put People First, Says One Supply Chain Executive, and Everything Will Be Okay.
• Why You Should Be Talking More About Voice Technology with Warehouse Managers and Associates

Retailers are under siege in today’s economy. Competitive product pricing, unreliable supply chains and rising overheads, when compared to ecommerce organizations, are placing companies under immense pressure. Additionally, retailers need to mitigate the risk of shoplifting and employee fraud during every step of their operations. To respond effectively to such challenges, many retailers are looking to radio frequency identification (RFID) to thwart theft and reduce administrative errors.

The National Retail Foundation (NRF) estimates that retailers in the United States lose more than $60 billion in annual revenues due to theft and employee fraud. RFID provides retailers with a host of new applications that reduce losses, track items throughout the supply chain and improve inventory accuracy. The NRF found that retailers suffer as much as 1.6 percent shrink (the term used for lost inventory) annually. For an organization like Walmart, that means losing about $8 billion in revenues during a single year. Using RFID to prevent theft, limit fraud and reduce counterfeiting is the best way retailers can fight back against increasing theft rates.

Quick Takeaways:

• Retailers can reduce shrink and maximize their ROI by implementing RFID to prevent theft.
• Modern RFID applications provide greater insights into every stage of your supply and distribution operations.
• You can track employees and products to ensure you have a detailed audit trail for every person or item throughout your different locations.

Why You Should Use RFID to Prevent Theft and Reduce Retail Shrink

The retail world is becoming more complex in terms of both its processes and technology adoption. Retail issues like asset protection, shrink prevention and information security now require sophisticated technologies to support an organization’s bottom line. According to some estimates, inventory shrink and employee theft are responsible for two-thirds of annual losses in the retail sector. Retailers are looking to RFID to stem the tide and implement improved controls during every step of their inventory-management and consumer-fulfillment operations. Item-level RFID systems improve inventory accuracy and process tracking, while allowing retailers to investigate issues efficiently. Discussed below are four ways in which RFID is helping retailers to enforce controls and prevent shrink across the industry.

1. Using RFID for Comprehensive Oversight of All Company Assets

At first, organizations only used RFID technology to keep track of expensive assets. Upon issuing a tablet or laptop to an employee, you could add an RFID tag to prevent someone from leaving the building with the equipment, without the proper authorization. As the technology became more accessible and affordable, retailers quickly started adopting RFID systems to manage inventory throughout the supply chain.

What most discovered was that while inventory management and stock replenishment may have been the primary goal, the return on investment (ROI) from RFID deployments went way beyond expectations. The reduction in costs of implementing RFID in retail situations makes it ideal for establishing a complete asset-management and oversight system. For retailers, using RFID readers at all exit locations can trigger an alarm if someone tries to slip out the door with stolen goods. Electronic article surveillance (EAS) systems are now common, providing retailers with additional benefits.

Placing RFID tags on individual items and readers at all exits can:

• Generate valuable data about what items are desirable for shoplifters, while alerting staff to any attempted theft
• Establish trends on products that are desirable, allowing you to implement additional security controls to curb losses due to theft
• Replace stolen products quickly to avoid lost sales due to stock-outs

2. Item-Level RFID Tagging Provides Inventory Visibility

RFID works wonders when it comes to keeping track of all your products throughout the retail supply chain. You can deploy the technology to manage and track every item in your inventory, from source to final destination. By working with manufacturers, retailers can use RFID sensors to record the providence, quality information, shipping details and intended destination of a specific item. RFID tags can collect the data you need to make intelligent business decisions, estimate demand and prevent inventory shrink at every stage along the supply chain.

When it comes to tracking your inventory, you’ll need to know where it’s currently located, how many of the items you have and how long it may take to replace an item if it’s lost in transit—all information that RFID tags can monitor. An additional benefit is that once your employees know you are tracking every item, it automatically discourages theft. Using RFID to prevent theft in retail increases employee accountability while helping you optimize your upstream distribution processes.

3. Auditing Process with Accurate RFID Tracking Data

Compared to other technologies like barcodes, RFID chips can store specific information on the tag during different stages of the process. You can timestamp arrivals at certain locations, track time between destinations, and record information about who accessed a product or batch of inventory at every step throughout your supply chain. If something goes missing, you can look up the person who accessed that batch, audit the upstream processes and identify exactly where the item was lost.

RFID sensors can also measure other elements in the journey, like registering shock damage and time in transit, as well as recording the exact location in your warehouse or stores. This level of inventory oversight and audit trails provides an immediate ROI by reducing retail shrink within weeks, instead of years. Management can pull up the entire history of an item throughout the supply chain, aiding the organization when conducting investigations into missing products.

4. Tracking Employees and Products Using RFID for Theft Prevention

Another way that retailers can reduce shrink and identify anyone culpable for losses is by tracking all employee movements. If your staff uses access cards to move through different zones of a store, you can identify where everyone was located when a product went missing. RFID tracking for products and employees allows you to find the likely suspect simply by pulling up the access history for each worker. Combining this information with your security surveillance system, you should be able to build a comprehensive case against the thief. The FBI and other organizations already use RFID tags to track visitors and personnel throughout their buildings. Retailers can use the same principles and deploy RFID to prevent fraud and theft at all their locations.

Learn More About Theft Prevention and Inventory Shrink at RFID Journal LIVE!

To find out more about how the latest RFID applications can help you reduce inventory shrink, identify fraudulent transactions and keep employees honest, join this year’s in-person event at RFID Journal LIVE! 2021. With global retail leaders attending and ready to showcase their latest innovative RFID applications, you can learn how to deploy RFID in your organization to reduce shrink, increase oversight and manage your inventory effectively.

A manufacturing traveler is a document that accompanies a product throughout its manufacturing process. It contains all the details about the materials and processes that went into the production of the given product.

Once a manufacturer receives an order, they create a detailed work order outlining the production steps. But to ensure smooth manufacturing, they also create a “traveler” document that accompanies the product, recording its progress through each station.

Tracking manufacturing travelers is essential for maintaining the integrity of the manufacturing process. It provides a systematic method to guarantee that every batch of items complies with the same high standards. It also allows manufacturers to track the location, time spent, how long it stayed at one location and the speed at which parts and unfinished products move through the manufacturing floor.

But, with the current paper-based or electronic/digital systems, tracking travelers in the manufacturing floor is an uphill task. One of the main challenges is to know the location of a workorder, and hence, its traveler at any given time.

RFID for Efficient Traveler Tracking

RFID tagging the work orders is an excellent solution to address these challenges. It enables work order tracking, which in turn allows the product to be tracked through the manufacturing process. It helps in streamlining the manufacturing process, and improving productivity and efficiency.

Manufacturing Traveler Tracking Use Case:

Here’s a use case that illustrates the significant role RFID asset tracking can play in efficiently tracking manufacturing travelers within production facilities.

An industrial manufacturing facility produces various parts for the aviation industry. The production process involves multiple stages, each requiring precise tracking of WIP, raw materials and technician information. The current system is paper-based, leading to inefficiencies and errors.

The facility faces challenges in tracking the status of a work order through the production line. Manufacturing staff and leadership need to know the status of workorders at any given time. Customers also are keen to get updates on the status of their work orders. Not having visibility into where the manufacturing traveler, and hence the work order is, leads to errors and inefficiencies. Further, misplaced manufacturing travelers can also be a challenge to locate.

Implementing an RFID solution can address these challenges. Each traveler is tagged with an RFID tag. As the WIP moves through the production line, the traveler tag is scanned at each station, automatically updating the system with WIP status. RFID helps eliminate manual data entry, and to easily obtain the status of a work order, by simply tracking the manufacturing traveler, thereby leading to improved data accuracy, consistency, and overall operational efficiency.

Benefits of using RFID for Traveler Tracking:

Real-time Visibility: The RFID system provides real-time visibility of the production process. Managers can instantly check the status of any work order in the production line.
Reduced Errors: By eliminating manual data entry, the RFID system significantly reduces errors in the tracking process.
Improved Efficiency: The RFID system streamlines the manufacturing traveler tracking process, improving the overall efficiency of the production line.

RFID solutions can transform the manufacturing process, making it more efficient, accurate, and reliable. Whether it’s aerospace, automotive, medical devices manufacturing, pharmaceutical manufacturing, or any other industry, RFID technology holds immense potential for enhancing manufacturing operations.

By now, you’ve surely heard the buzz surrounding radio frequency identification, or RFID. Supply chain businesses around the world are using it to improve their productivity and increase the return on their investments. However, many companies are still unsure about RFID systems in general. They’re wondering what technology they include and how they will actually work in their warehouse or distribution center.

If you or your co-workers have wondered these same things, Lowry is here to help and explain. Follow this guide to find out what RFID is, what it does and how it can benefit you.

What is RFID technology, exactly?

RFID is a method of data collection that involves automatically identifying objects through low-power radio waves. Data is sent and received with a system consisting of RFID tags, an antenna, an RFID reader, and a transceiver.

How does RFID work?

Like barcode technology, RFID Scanner recognizes locations and identification of tagged items — but instead of reading laser light reflections from printed barcode labels, it leverages low-power radio frequencies to collect and store data. In a warehouse or distribution center, RFID technology is used to automate data collection. The transceiver reads radio frequencies and transmits them to an RFID tag. The identification information is then transmitted from a tiny computer chip embedded in the tag and broadcasted to the RFID reader.

Here are a few of RFID’s helpful features and functions:

• Tags can trigger alarms when moved
• Communication between readers and tags is not contingent upon orientation
• Data can be automatically read and stored
• Tags can carry unique or standardized product codes
• Items can be individually labeled, but read in mass
• Tag data is compatible with WMS and ERP systems
• Tags are difficult to reproduce/counterfeit

What is the difference between RFID Scanner and barcode technology?

Barcode and RFID share similar functionalities, but they have one distinct difference: human intervention, or “line of sight.” This refers to the distance between the operator of the data collection device (barcode scanner or RFID reader) and the labeled or tagged item — in other words, whether or not they are close enough to the item to see it.

To get a good barcode read, operators must position their handheld scanner within the line of sight of the item. To collect data using RFID technology, operators are not as limited — they simply need to be within the range of the tag. This means that employees can collect data for any item within the read range without physically moving from shelf to shelf. This also means that more than one item can be read at once. For those reasons, many companies are looking to RFID to add even more value to their operations.

What are the benefits of using RFID?

With RFID, supply chain businesses can track the movement of their inventory items and assets. By eliminating labor-intensive inventory tracking processes that require human intervention and increasing visibility of your items and assets, RFID can help businesses cut costs related to manufacturing, distribution, inventory management, and asset tracking.

RFID automates your data collection process so that your employees can eliminate time-consuming procedures and spend more time on what’s important: customer service, shipping, and picking.

An automated data collection system — especially one that does not require human intervention — improves speed and accuracy so that employees can get more done in a shorter amount of time (and get it done right the first time). Because of this, RFID allows businesses to decrease their labor costs. And with improved accuracy, businesses can also increase their throughput, and therefore reduce their inventory carrying costs as well.

Not to mention, improved accuracy can yield even more benefits. When shipments arrive on time and in the right quantities, customers are bound to be more satisfied with your service.

If you have any other questions, please contact an expert at Lowry Solutions. We’d be happy to help!

Supply chain management: building resilience and strategies for mitigating market volatility

If supply chain shocks are new to you, you’re likely new to supply chain.

It’s almost par for the course that blips, booms, rises and falls are the parts of supply chain to set your watch by.

If you’ve been in this game a while, the times when everything’s going well are the times where concern creeps in.

History repeats itself. And just as governments rise and fall, so too do your supply chain fortunes.

In the past, you may have adopted some simple tactics to mitigate market volatility. And they probably worked, to some extent.

Maybe you simply ordered more inventory? Or ordered stock sooner than ever before, to avoid disappointment?

These days, the more robust your thinking, the better your supply chain strategy. And the better strategy you have before the disruption comes, the better prepared you are for the inevitable.

Supply chain resilience is the name of the game. And those who manage it well normally win the race. But this is a marathon, not a sprint.

So, what steps can you take to enable a brighter future for your business?

Let’s start with the supply chain basics

Before we dive into the topic of building more resilient supply chains, let’s begin with the fundamentals.

In the first section of our supply chain guide, we will explore:

• A supply chain definition everyone can agree on?
• The importance of ‘good’ supply chain management
• The pitfalls of ‘bad’ supply chain management
• Who should be involved in your supply chain decision-making process?
• What supply chain processes underpin your operation?
• How can technology support your long-term supply chain success?

What is supply chain management?

Supply chain management is an extremely broad topic. Whether you are deciding which supplier to order from or where you should allocate inventory within your network, the day-to-day supply chain decisions you make have an impact every aspect of your business.

In essence, supply chain management is all about managing the flow of goods throughout your operation. And of course, a harmonious flow of stock depends on a steady stream of robust data as well a tight grasp of the financial implications of your supply chain actions.

From the sourcing of raw materials right through to delivery of the product at its end destination, supply chain management is ultimately the value-add process that allows your business to fulfil your customer’s demand.

Why is supply chain management important?

Your customers measure you by the effectiveness of your supply chain. It’s that simple.

If an order is delivered late, arrives broken or was out-of-stock, to begin with, these are all red flags your customers look out for. The kind of red flags that could lead them to your competitors!

On the other hand, if your supply chain processes are up to scratch, you can be confident that your products are delivered quickly and efficiently with minimal disruption.

Moreover, you will be better prepared to operate flexibly around unexpected volatility to exceed customer expectations at an optimised cost.

Let’s break down some of the benefits of ‘good’ supply chain management:

• Minimise the risk of planning errors.
• Attain greater control over supply chain costs.
• Improve service achieved through better availability.
• Accelerate stock turns to ensure effective use of working capital.
• Reduce inventory levels & cut waste.
• Increase responsiveness to customer & market changes.
• Achieve stronger profit margins.
• Optimise the use of warehouse space, resources and labour resulting in a more sustainable operation.

What are the pitfalls of ‘poor’ supply chain management:

• Increased avoidable costs.
• Excessive firefighting and poor efficiency.
• High levels of excess stock.
• Increase in preventable out-of-stocks.
• Poor customer satisfaction resulting in lost customers.
• Lack of visibility & flexibility to respond to volatility.
• Poor communication resulting in dis-jointed decisions making.

What are the building blocks of an effective supply chain?

Your supply chain won’t manage itself. That much should be obvious.

To ensure your supply chain runs as smoothly as possible, you need a few critical ingredients:

1. Engaged people
2. Effective processes
3. Flexible systems

Let’s explore the critical role each element plays in more detail.

1) People: Who is involved in your supply chain?

Your supply chain can’t exist in a vacuum.

There are lots of stakeholders with varying degrees of interest and influence.

From the customers you serve, to you team that places the order and the suppliers that manufacture your products, each plays an important role in shaping your supply chain actions.

Your customers

The main purpose of your supply chain is to fulfil the needs of your customers. Therefore, it probably makes sense they are seen as a crucial stakeholder within your supply chain decision-making process.

Your customer’s expectations should drive the breadth & depth of your assortment as well as the minimal level of service you need to maintain. As the trigger point for demand (and therefore the main source of your revenue stream), this is a stakeholder you can’t afford to overlook!

Your supplier & logistics partners

“You are only as strong as the weakest link in your chain.” It’s everyone’s favourite supply chain cliché. And with good reason!”

Your suppliers are the stakeholders you count on to maintain a dependable supply of the materials, components and finished goods you need to fulfil customer demand in a timely manner.

But let’s not forgot about the trusty supply chain partners that help get your inventory from point A to point B.

We’re talking about your logistics providers, your packaging suppliers & everyone else involved in the distribution of products throughout your operation.

Strong relationships with your suppliers and logistics partners can make or break your business. So, forget these guys at your peril.

The Management

We have covered external stakeholders, but who is leading the charge internally? Well, The Management team are an obvious starting point.

As the team that is ultimately responsible for shaping the direction and the trajectory of the whole business, management decisions have a direct impact on all supply chain decisions.

From hiring the supply chain team to setting the desired level of service, the CEO and wider board of directors are responsible for setting the vision and strategy for the organization. But more importantly, they also set the tone for how this vision is achieved.

The Planning Team

Sure, the Management Team outline the business ambitions, but the planning team are there to make sure these dreams and desires become a reality.

Ultimately, the planning team are responsible for anticipating future demand and aligning this seamlessly with supply. By collaborating with other internal teams, suppliers and even the end customer directly, the planning team go to great lengths to ensure the right stock is available in the right place.

No business is exempt from volatility. Therefore, it’s also up to the planning team to anticipate disruption on the horizon and take proactive steps to mitigate risk before it hits the customer. We will explore the topic of supply chain disruption in more detail later.

The Sales Team

Your sales team are the voice of the customer. Their entire world is focused on dealing with customers. This means they have an intimate and personal understanding of your customer’s goals, expectations, and concerns.

On one hand, the sales team play a crucial role in generating demand in the first place. However, as the main point of contact, the sales team also hold invaluable market insight that can be used to enhance the statistical analysis the planning team typically rely on.

The Finance Team

It’s easy to get carried away. Sure, you could fill your warehouse to the rafters with all the stock you could ever need to satisfy customer demand. However, this approach will not do anything for your bank balance.

Thankfully, this is where the finance team comes in!

The number crunchers in finance are there to ensure the financial resources are allocated efficiently and effectively. This means monitoring the financial data and analysing the risks around investments, budgeting, and forecasting.

Given that inventory is likely to be one of the biggest numbers on your balance sheet, the effectiveness of your supply chain decisions is therefore of primary concern. As guardians of the business’ financial resource, this team will often work with teams across the business to improve the efficiency of the supply chain.

IT

Your IT team are the hidden heroes of your entire operation.

To make good supply chain decisions, all of the people above need robust data. More importantly, they need this data delivered in a way they can utilise it.

The IT team are there to keep the systems that underpin your supply chain up and running. But when you consider how much data is flying around your business combined with all the inputs required from customers and suppliers, this is no mean feat!

2) What processes underpin your supply chain decisions?

Your supply chain is a machine with lots of moving parts. As such, there are lots of processes & workflows that are required to keep your operation ticking along smoothly

Here are some of the core processes that underpin your operation:

Assortment planning

This is the process of working out which products to offer your customers and in what quantities. To achieve the right balance of choice, variety, and quality, we need to think about the needs of the customers, your competitor’s product portfolio and the constraints.

Demand planning

To balance supply with demand, you first need an idea of how much demand you should expect. This aspect of your supply chain is all about anticipating future demand based on historical sales data, current market conditions, and customer trends.

Done well, your demand plans will help you make supply chain decisions with confidence. But, be warned, poor quality forecasts will lead to avoidable planning errors.

Supply planning

Determining future demand is one thing and working out how to fulfil it is another. To achieve your supply chain goals, you need to work with your upstream supply chain partners.

This means optimising orders & delivery schedules to make sure the stock you need arrives in your warehouse when you need it.

Investing in stock and then distributing it around the world comes doesn’t come cheap. Therefore, the decisions you make around sourcing and order volumes should also align with the needs of the finance team.

Inventory optimisation

There are lots of levers you can pull to ensure your supply chain is as efficient as possible. One of the most important is the levels of inventory you hold.

Inventory management is a delicate balancing act between high availability, minimised cost, and optimised use of working capital. If you over-invest in stock, you will lock up working capital and put the squeeze on your cash flow. Invest in too little, and you risk falling short of customer expectations.

S&OP

As one of the most important parts of the supply chain puzzle, collaboration is key. Thankfully, this is the process that ties all of the people and other processes together to maximize profits and meet customer demand with vigour.

3) Technology

The days of using abacuses & crystal balls to manage your operation are long gone. To cope with the complexity of modern supply chains, businesses need advanced technology that galvanises the people and processes involved.

For many businesses, spreadsheets are typically the weapon of choice. And sure, complicated, and clunky formulas are better than nothing.

But effective supply chain technology should be an enabler for your supply chain success. It should help your people make better decisions. It should help your processes run with precision and speed. It should be the glue that sticks everything together!

How should you manage your supply chain out in the ‘wild’?

So far, we have talked about supply chain management from a theoretical perspective.

On paper, the supply chain formula for success probably sounds easy. Involve the right people, set up some clever processes & support it with robust technology, and your good to go!

If only it were this simple!

Sure, if the world was nice and stable, this probably would be the case. However, we are never a few heartbeats away from the next big supply chain disruption.

Take the last few years. we’ve had what most would consider a monumental level of disruption to business.

There’s been worldwide recessions, pandemics, natural disasters, international conflict, and people in power with nuclear codes, you wouldn’t trust with your phone charger.

And so, in the next section of this guide to supply chain, we will explore how you can build a disruption-proof supply chain.
You’ll learn how to build resiliency throughout your supply chain processes.

You’ll understand what supply chain tactics you can deploy to combat volatility.

You will discover how to investigate the costs involved, and how to adapt your supply chain to cope with whatever the world throws at you.

But most importantly, you will find out how to ensure your supply chain is geared up to overcome the challenges today as well as take on the hurdles you may encounter in the future!

Supply chain strategies to combat disruption: Absorb or Respond?

Airline crews have some of the best crisis training in the world. Their response to ‘worst case scenarios’ needs to be absolutely on the money.

But rather than think about what should happen with every eventuality before take-off. They know the protocols inside out. They know who makes the decisions and how to communicate them to respond in record time.

When designing your supply chain, the same thinking can take you a long way.

Don’t spend time thinking about lightning strikes. Or fog. Or rogue missiles.

Focus on preparing everyone involved with the experience and know-how to guide you through.

But let’s bring this back down to earth.

How does this relate to the resilience of your supply chain?

Michelman & Sheffi (1983) describe two methods for achieving a resilient supply chain.

In essence, you can either absorb the risk or you can respond to it.

An absorb strategy focuses on building a protective buffer into a supply chain. Think of this as the supply chain equivalent of the crumple zones on your cars.

All that extra metal & structural integrity might feel like overkill. But should an unexpected accident occur, this extra measure could well save your life.

A respond strategy focuses on the ability to remain flexible.

Sticking with the automotive example, this is a bit like your car’s anti-lock braking system. By constantly adapting to changing conditions, this approach helps you to apply the brakes or gas at just the right moment.

Let’s explore each of these supply chain strategies in more depth.

The Absorb strategy

Achieving supply chain resilience through an absorb strategy is a common and straightforward way of dealing with disruption.

Absorbing a shock is a core competency of supply chains, but it comes at a cost.

Naturally, adding inventory or infrastructure can give you a buffer from demand or supply shocks, and create an advantage over competitors.

You can also create a long-term advantage with an absorb strategy, by giving protection for markets or customers, leveraging expansion opportunities, and exploiting competitive situations.

THE COST OF CAUTION

Everything in life comes at a cost. And the absorption strategy’s no different.

Common ways to absorb disruptions include building excess production or distribution capacity and even investing in additional supply chain infrastructure.

Without a reliable source of supply, however, these strategies are useless and won’t serve you well.

This is why an absorb strategy generally involves holding inventory at various stages throughout the supply chain. Buts it’s not always the magical silver bullet that will save you in a tight spot.

Many companies invest in safety stocks covering ‘expected’ demand and supply variability.

Yet, these safety stock inventories are not typically catered to the scale of disruption witnessed when disasters occur.

Therefore, you may need to introduce processes to determine the optimal level of protection for both expected and unexpected disruption.

The Respond strategy

Responsiveness is the ability to answer supply and demand shocks through rapid execution. Otherwise called flexibility. Or the art of being quick on your feet.

Respond strategies, unlike absorb strategies, are not necessarily a core competency of supply chains.

That’s because many of its concepts are built on complicated design.

Examples of respond strategies include:

1)  ADOPTING STANDARDISED PROCESSES

Standardisation of processes can help to quickly switch direction when a
disaster happens.

2)  CONCURRENT MANUFACTURING/PROCESSING

Allows your business to decrease the time-to-market when changes in demand
occur.

3)  POSTPONED MANUFACTURING

Leaves WIP inventory in a state it can still be modified to fit changing
demands.

4)  BUILDING RELATIONSHIPS.

Information sharing with customers and vendors, upstream and downstream,
not only benefits time-to-market but also allows for quicker response to
disruptions.

THIS ‘MIGHT’ HURT YOUR WALLET

Working collaboratively is a prerequisite for most of the respond strategies above. And like the Absorb strategy, there’s a cost… isn’t there always?!

For a start, it may be more difficult to set up respond strategies in the first place. And on top of that, these strategies may be less proven than filling your warehouse with safety stock.

There’s also a greater difficulty in measuring the financial impact. And if you don’t know how much something will cost, you’re entering into unknown territory. Which is a risky place to take your supply chain.

THE BEST OF BOTH WORLDS?

A difficulty you may face in analysing the right form of approach is working out whether the absorb or respond strategy is the best course of action.

In most situations, the best solution is usually a combination of both.

However, it should be a strategic choice, depending on your market strategy and other factors like margin and the criticality of the product.

But that’s not always an easy thing to spot. Like any other supply chain decision, the trade-off is driven by cost versus benefit.

How to build your supply chain response strategy

Creating a responsive supply chain requires a thought-provoking exercise to imagine all the events that might hinder your operation.

As I mentioned above, however, planning for disasters doesn’t imply having one distinct plan for each.

There’s obviously a distinct physical difference between walking into a warehouse impacted by a flood and a fire, but the impact on business may be similar.

Entering unknown territory is always easier if there’s a map and compass to guide you.

More importantly, providing the people, processes and even the supporting technology with a common focus will pay dividends.

Building the right supply chain strategy then requires:

1. Mapping possible disruptions and classifying how and where it affects you.
2. Grouping items based on the impact of disruptions
3. Mapping sources of supply.
4. Mapping costs of resilience strategies.

Combining the above information to design a winning supply chain.

1. Mapping possible disruptions

The result of the disruption’s far more important than the actual disruption itself.

Therefore, it’s not required to have a distinct strategy for every type of disruption. In fact, it’s better to group disasters by potential impact.
Sure, fire and water are different entities. But the impact of either at your manufacturing plant will be different in impact to one at your retail stores.

As mapping all possible disruptions and designing a strategy for each is virtually impossible, it’s a good idea to group disruptions by the scale of impact and duration.

Where does a small fire in the warehouse rank to raging wildfires in the location of your most popular stores?

How does a minor delay in shipping rank to a block in the Suez canal?

One idea to help your ranking system is to classify impact by local, national or global brackets, and classify its impact as either temporary or long-term.

2. Grouping items based on the impact of disruptions

Not every product within your assortment requires the same strategy.

When designing effective supply chain resilience strategies, a logical place to start is proactively categorising inventory.

For example, if a supplier of one of your C-items is hit by an outbreak of flu, your response strategy will be different. Perhaps, you just have to make do until the supplier gets back up and running.

However, if a supplier of one of your A-items suddenly goes out of business, it should be all hands on deck.

By working in this way, you won’t waste time with discussion or indecision on which products in your portfolio to prioritise for recovery.

3. Mapping sources of supply

As modern supply chains are globalised and interwoven, there are few nodes left that are fully autonomous.

A model that can help you manage this complexity is the Kraljic matrix (all be it with a slight twist).

The criticality of a product and the complexity of its supply determine what strategy to take when working with vendors.

For example, products or raw materials that are critical and have a supply constraint require planning for long-term availability and having great relationships with tier-1 vendors.

If you a supplier of one of your C-items is hit by an outbreak of flu, your response strategy will be different. Perhaps, you just have to make do until the supplier gets back up and running.

In many cases, collaborative relationships with vendors will pay off massively.

4. Mapping costs of resilience strategies

“What’s this going to cost us?”

As mentioned above, the trade-off between absorb and respond is driven by cost vs. benefit. But the impact of a disaster can often be tough to work out.

Evaluating the difference in cost between absorbing or responding is easier.

Some costs you should factor in for comparative purposes:

1. Holding costs for additional buffer.
2. Cost for additional capacity.
3. Cost of additional manpower to maintain.
4. Higher manufacturing costs due to smaller batches.

When introducing more advanced concepts such as concurrent and postponed manufacturing, there might also be benefits for day-to-day operational costs.

It’s also worth adding that you can not be sure your supply chain plans are watertight until you have crunched the numbers and explored a few potential scenarios.

Further reading:

Bloem, D & Rude, J (2022), Supply chain resiliency: Absorb versus respond, Journal of Supply Chain Management, Logistics and Procurement, Vol. 5, No. 1, pp. 50-62

Kraljic, P. (1983), ‘Purchasing must become supply management’, Operations Management, Vol. 61, No. 5, pp. 109–117

Stentoft, J., & Mikkelsen, O. S. (2022), Danske produktionsvirksomheders sourcing praksis set i lyset af COVID19 og brugen af nye digitale teknologier. Syddansk Universitet. Institut for Entreprenørskab og Relationsledelse.