Global Supply Chain: How to Keep Pace With the Rest of the World

It is well known that the Supply Chain world is inherently very dynamic, with the entire world as its playing field, but in recent years it has undergone such a drastic acceleration that it has forced every company to rethink the internal logic of its organization. Drastic and dramatic events such as Covid, the Suez Canal blockage, and recent wars have only opened a Pandora’s box, tracing what will be the trend of the future: an increasingly uncertain world and a Global Supply Chain that must be increasingly flexible and chameleonic.

Supply Chain Management: Cost Reduction vs. Delivery Flexibility

In past years, when talking about Supply Chain management, we were always accustomed to a recurring conflict between cost reduction and delivery flexibility. Supporters of the first faction traveled the world in search of the most aggressive savings on individual components. With RfQs in hand, they scouted areas with the lowest labor costs and a decent level of product quality. Conversely, highly intricate Supply Chains were created, where raw materials and semi-finished products crossed the globe before reaching the company. Fans of the second faction, however, had their entire Supply Chain within a 50 km radius, with trusted suppliers and usually a very high dependency from whom they could ask for miracles and the famous “deliveries for yesterday,” certain that their every wish would be granted. The result was a massive number of orders, phone calls, priority emails, vehicle traffic, and out-of-control costs.

De-Globalization and Supply Chain: Risks and Opportunities

The first goal that Supply Chain Managers worldwide have set to cope with the tsunamis of recent years is risk reduction, or rather, risk “diversification.” There is a tendency to seek alternative suppliers even for strategic goods, at the expense of efficiency but in favor of flexibility. One trend in this direction is known as “nearshoring,” which aims to reduce the fragmentation of certain Supply Chains. This phenomenon, termed “slowbalization” by The Economist, shows a slowdown in overseas outsourcing of production or supply, also supported by various government subsidies to sustain national producers.

Total Cost of Ownership (TCO) in the Supply Chain: A New Approach

Given the rather turbulent recent years, it has become almost mandatory to stop and, if necessary, redesign the structure of one’s Supply Chain. To efficiently manage a global Supply Chain, it is essential to adopt Total Cost of Ownership (TCO) analysis. This methodology evaluates costs from a 360-degree perspective, including direct costs, management costs, and risk factors, offering a complete view that allows for process optimization and improved overall Supply Chain efficiency.

To perform a correct TCO evaluation, three main factors must be examined:

Direct Costs

Present in any transaction between customers and suppliers. In addition to the intrinsic cost of the good, packaging, transport, payment terms, and customs duties must also be considered.

Management Costs

In the potential supplier evaluation phase, we have so-called pre-order costs, which are all costs incurred before sending the first order. To these must be added the so-called operating costs, relating, for example, to order issuance, confirmation management, quality and quantity control, invoice control, and payment. Finally, indirect costs must be added, such as reminders and management in case of delivery delays, management of any quality non-conformities, and the safety stock to be kept to avoid production interruptions.

Risk Factors

These are directly linked to the supplier, such as their economic-financial situation, size and structure, level of product expertise, willingness to collaborate, flexibility, and compliance with safety regulations. Therefore, Consultancy for a careful evaluation of these parameters is necessary to have a starting point on which to build new corporate strategies.

End-to-End (E2E) Supply Chain: Alternative Methodologies for Efficiency

A change in perspective can certainly be provided by the end-to-end (E2E) Supply Chain, a paradigm in which all functions within the Supply Chain are integrated with each other, improving efficiency through greater visibility of the entire process. This approach contrasts with the classic view where each function is isolated and managed separately, under the belief that maximizing the results of each one automatically leads to better achievement of company goals.

To best understand this methodology, one must first think of the Supply Chain as a chain whose main components are:

• demand/supply planning based on forecasting;
• definition of the best procurement strategy;
• efficient production;
• warehousing sized and based on the planning performed;
• reliable Outbound logistics;
• guarantee of good after-sales service for customer management;
• reverse logistics for product return or repair.

The glue for the integration of the processes mentioned above is certainly digitization, through an ERP system, in order to have visibility and control all steps of this process in real time. Along with it, the main factors that make an E2E Supply Chain successful are:

• a method/tool for demand forecasting;
• a lean approach to inventory, to accelerate order fulfillment and increase accuracy;
• flexibility in human resource planning, to meet sudden changes;
• analysis of the root causes of current inefficient processes and development of solutions;
• benchmarking to measure performance;
• sharing information throughout the entire chain (supplier-manufacturer-customer).

The primary advantages of this approach are certainly prevention and risk reduction, having complete visibility that eliminates so-called “blind spots” along the process. Furthermore, there will be a better relationship with suppliers and customers, precisely due to the transparency the method proposes.

As stated at the beginning of the paragraph, to best manage an E2E Supply Chain, one must know and address the trade-offs between various functions, knowing that decisions made within one can affect the performance of others. Each level must therefore know the existing connections from the supplier to the final customer and plan its actions accordingly.

Learn More About Supply Chain Management With Our Experts

If you wish to delve deeper into the topics covered and discover how to optimize your Supply Chain management to improve efficiency and flexibility, Makeitalia is a leader in supply chain management. We are ready to support you with solutions tailored to your business needs. Contact us!