For a long time, companies had been redesigning their supply chain networks and practices to become more demand driven. However, with the pandemic-related disruptions in supply over the past two years, companies have had to shift their focus to be more supply driven. Their manufacturing, sales, and promotions plans are now driven more by what parts or inventory they have on hand, or are assured of obtaining in the near term, than by customer demand. In fact, in a survey of our Indago supply chain research community in July 2021, 58% of the respondents said they were becoming more supply driven in response to current market challenges.
Thus, enabling assurance of supply is now critical for business success. What are the main challenges in this transition? How are logistics service providers helping companies navigate through these challenges? And what is the role of technology? Those are the key questions I discussed with Tom Nightingale, CEO at AFS Logistics, and Martin Verwijmeren, CEO and Cofounder at MPO, in a recent episode of Talking Logistics.
The Supply Shift
AFS Logistics is in its 40th year of delivering freight audit and payment, LTL, parcel and transportation management services to 1,800 customers across the U.S. and Canada, with 380 associates in eight locations. I began our discussion by asking Tom what challenges his customers are facing in the shift to a supply focus.
Tom says, “The basic objectives of balancing cost against customer satisfaction are the same, but the underlying constraints for achieving those objectives have changed forever. The price of failure for not satisfying the customer has never been higher. The ease with which a customer can change suppliers with a few mouse clicks has ramped up the pressure on companies to build up inventory levels to assure supply, but that comes at a cost.
“At the same time, CFOs see the cost of capital tied up in inventory and they are also putting pressure on supply chain professionals,” continues Tom. “The traditional methods to control costs like vendor managed inventory aren’t working anymore, particularly as supply chains have gotten longer.”
Martin concurs with Tom’s comments and adds, “Service levels must be superior in order to compete, and the competition is global. And global networks require businesses to be more agile, while the cloud is disrupting B2B processes. Traditional visibility, usually thought of as real-time transportation visibility, is helpful for this, but it’s not enough. Companies now need real-time visibility across the supply chain to customer demand, global supply, and all of the inventory in-between at rest and in transit.”
Martin further explains that companies must go beyond “passive” visibility to what he calls active control — the ability to act on what you see. “It involves purchase orders, sales orders, inventory levels, transportation plans and costs,” he says.
A Unique Solution
To deal with these challenges, AFS partnered with MPO and Taulia to create what Tom believes is a unique solution. “It goes beyond the control tower approach people in the industry are used to,” notes Tom. “As a 4PL, we saw this inventory build-up and carrying cost problem coming and went out to the manufacturers and purchased the inventory and placed it strategically near the buyers. By using MPO for demand visibility and access to supply networks, we give customers real-time visibility to the inventory so they can pull it from a nearby warehouse and they don’t have to carry it on their books. And for the sellers, their Days Sales Outstanding goes to zero. Supply chain risks thus go down for both buyers and sellers.”
Beyond the innovation MPO and AFS have accomplished in marrying real-time supply chain visibility with inventory management to reduce risks, I asked Martin what comes next. Martin indicates that the next generation of this innovation is the further convergence of planning and execution disciplines. He states this convergence must employ the “3 I’s.” He explains, “It must be integral between multiple echelons, multiple processes, and multiple parties; it must be intelligent using smart algorithms; and it should work instantly.”
Martin went on to explain how advanced technologies such as AI and machine learning will help create new solutions across many supply chain processes, including linking transactional data with real-time analytics to optimize in the moment. For all of his insights and advice, as well as Tom’s advice on how companies can get started on this journey to supply assurance, I encourage you to watch the full episode. Then keep the conversation going with your questions or comments.