Three Fears Looming Over Supply Chains in 2021 - Elementum

Three Fears Looming Over
Supply Chains in 2021

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Supply chain and finance leaders need to be prepared to
meet three challenges head-on this year
Operations and finance leaders have good reason to be fearful about the continued challenges supply chains
will face in 2021. With the COVID-19 pandemic still raging, governments across the world will do their best to
control the societal and economic fallout. Despite those efforts, the prospect of more lockdowns, increased safety
regulations, uneven vaccine rollouts, and the emergence of new virus variants still loom large over business and
their employees.

While there’s reason for optimism as the developed vaccines show promise to curb the pandemic, even the best
run companies won’t control their own destinies until the headwinds dissipate. It’s safe to assume that business
conditions won’t even begin to normalize until 2022.

With the world in such an unsettled state, finance and operations leaders across all types of business can expect
to spend most of this year battling economic uncertainty, rising costs, and sky-high customer expectations.

1. Economic Uncertainty
Volatile business conditions will make it impossible for
companies to accurately predict demand for their products
and services (yes, even with sophisticated forecasting
software). Demand will resemble a rollercoaster with some
industries seeing huge spikes in order volumes and others
having huge falls. Take food and beverages as an example.
The grocery industry will continue to boom early this year
while restaurants cope with minimal traffic. At some point
the balance between the two should shift as diners return,     - Source: Freightos Baltic Index

but the question is “when?” That unpredictability means that food retailers and restaurants can’t plan ahead.

Retail provides another example of demand behavior turned upside down by the pandemic. E-commerce has
boomed as consumers avoid in-store shopping and order more products online. But when the pandemic subsides
and stores do finally get to open back to full capacity, it’s an open question whether store shopping returns or the
dominance of e-commerce in retail becomes permanent.

The COVID-19 pandemic will also continue to plague suppliers such that supply constraints will compound the
problem of meeting unpredictable demand for supply chains. It’s safe to expect that there will be rolling factory
closures as COVID infections impact the labor force. On top of that, ongoing inefficiencies from remote work and
COVID-related precautions will hamper and slow down supply chain activity.

     As we come out of the pandemic, there are going to be some businesses that have more volatility than they
     experienced earlier because some aspects of their business may be reversing. You want to have a plan to
     market and promote yourself to compensate for that volatility.” - Mark Cuban 1

Capacity constraints in the supply chain infrastructure is another concern. Ship congestion at the ports of Los
Angeles and Long Beach has become a bottleneck for U.S. imports because there aren’t enough people to
sanitize the ship and ports for safe operations. And the problem of port congestion is not confined to the United
States. The cost of ocean shipping from Asia to Europe has increased due to port bottlenecks and container
shortages.

Navigating both volatile demand along with supply and capacity constraints will make it painstakingly difficult for
supply chains to manage their operation with any semblance of efficiency.
1. Mark Cuban, Salesforce Interview, Jan 8 2021, https://www.salesforce.com/blog/business-resilience-mark-cuban/       2

2. Rising Costs
Economic uncertainty also leads to rising costs in the supply chain
as businesses can’t plan ahead and sign firm contracts for supply
and services such as warehousing and transportation.

Indeed, when schedules and procedures are knocked off course,
managers can’t stick to their budgets. Out-of-line costs increase as
supply chain managers scramble to deal with last-minute situations
that threaten production or customer service. To maintain
production schedules, the factory manager feels forced to use
a trucker outside the company’s core carrier program for an expedited shipment of a critical component, which
results in higher transportation charge. Or the factory manager turns to an alternative supplier for a component
only to discover the use of the substitute part requires more extensive labor in production, resulting in higher
manufacturing costs.

As a precaution against shipping or production crises, companies decide that the answer is to increase safety
stock and stockpile parts and finished products. But holding more inventory than needed results in higher
warehouse carrying costs and ties up capital.

On top of that, when supply chain operations are “firefighting” to fix last-minute production or distribution crises,
operational costs go up as well. When the supply chain team has to pitch in and pick up the slack with more
hours, it results in more overtime and higher turnover rates that further drive up costs.

Unfortunately, when costs climb for production, distribution, inventory, or day-to-day operations, it erodes the
company’s profit margin.

3. Sky-high Customer Expectations
Customers have increasingly grown accustomed to the level of
service they receive from the online retailer Amazon. Whether
it’s at-home shoppers or business customers, the expectation when now ordering is that products will be cheap,
and delivered with speed. Gone are the days of brand loyalty as the customer experience trumps all other factors
when it comes to making purchasing decisions.

Not surprisingly, customers with sky-high service expectations will not tolerate stockouts. They expect the product
to be immediately available for purchase or they will go elsewhere to shop.

  Effective Sept. 15, 2020, [Walmart] required its suppliers...to deliver all orders...by their
  “must-arrive-by” dates 98% of the time or be fined 3% of the cost of the goods...giving its
  massive supplier and carrier network just two weeks to adjust. - Mark Solomon, Freightwaves 2

Retailers are fully cognizant of this. That’s why most retailers have imposed stricter delivery requirements on their
suppliers. If a shipment misses its delivery window, or, the shipment arrives incomplete with items missing from the
order, the retailer fines or penalizes the supplier. In fact, for some retailers, supplier penalties has even turned into
a profit center.

In the world of sky-high expectations, supply chain performance is essential. Companies that can’t meet
expectations get hit with penalties or, worse, they lose customers.

2. Sep 11, 2020, https://freightwaves.com/news/walmart-tightens-on-time-in-full-requirements                                3

The solution
In addressing those three challenges, you need to ask yourself these questions: At any moment, do you know
the most important issues impacting your customers, partners, or products? Do you know who’s working on those
issues, and are you confident that those issues won’t happen again? If you can’t answer “yes” to each of those
questions at a moment’s notice, then your supply chain is not primed for success. And if the answer is “it’s on so-
and-so’s spreadsheet,” then you’re definitely in trouble.

2021 calls for supply chains to be agile with the ability to pivot in response to changing circumstances. But
that’s impossible for most companies as they still run their supply chains using emails and spreadsheets for
communication and response coordination.

Those old-fashioned means of communications are suboptimal tools for supply chains to deal with the challenges
of economic uncertainty, rising costs, and sky-high customer expectations. Organizations still using these tools
suffer from rigidity, errant processes, and wasted effort to solve the same recurring issue.

What’s the answer? Companies must replace outdated communication and collaboration methods with a service
management platform that unites operations, logistics, finance, and customer service to address supply chain
exceptions. A service platform can structure processes to run day-to-day operations faster and more efficiently.
It also gives companies early visibility across the organization to sudden demand, emerging threats, or incidents
impacting the supply chain.

In addition to visibility, the platform ensures procedures are followed while supporting collaboration across the
organization to track, manage, and resolve supply chain issues faster and with added efficiency. Platform analytics
further enable companies to identify root causes for permanent corrective action.

Most importantly, with a service management platform, you know exactly what the priorities are, who’s working on
them, and you know those same problems won’t happen again.

Succeeding In 2021
  The next normal is going to be different. It will not mean going back to the conditions that
  prevailed in 2019. Indeed, just as the terms “prewar” and “postwar” are commonly used
  to describe the 20th century, generations to come will likely discuss the pre-COVID-19 and
  post-COVID-19 eras. - McKinsey Global Institute 3

2021 will be a very challenging year. Unpredictability, volatile costs, and sky-high customer expectations will put
unrelenting pressure on operations.

By using a service management platform, supply chain leaders can best position their companies to successfully
navigate these challenges and put an end to “firefighting,” lurching from one crisis to another. As a result, the
leaders become pro-active with the ability to address a problem before it arises in the supply chain.

A Service Management Platform like Elementum’s enables companies to address those three challenges
by standardizing supply chain processes with repeatable workflows, protecting revenue through increased
transparency and accountability, and leveraging real-time analytics and collaboration to identify and solve
recurring problems.

3. Jan 4, 2021 The next normal arrives: Trends that will define 2021, https://www.mckinsey.com/featured-insights/leadership/the-next-normal-arrives-trends-that-will-define-2021-and-beyond#   4

Elementum is the company behind the leading Supply Chain Service Management
platform. In an age when supply constraints are increasingly common and demand
forecasts are consistently unpredictable, it’s more important than ever to maintain
     operational agility in order to hit service levels and keep customers happy.
  Elementum’s SaaS platform centralizes information and communication to drive
 real-time decisions, enable cross-ecosystem execution, and ensure products are
                 available at the right time, place, quantity, and cost.

                                                           TM

                         Learn more at www.Elementum.com

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