Another month, another tariff or trade announcement, another supply chain disruption. Companies today compete in a volatile, fast-moving environment — but their supply chains don’t always match the speed of business.
Gone are the days when organizations could take two weeks to test scenarios and another month to finish implementation. Enterprises have to make rapid-fire adjustments with confidence or risk millions in profitability and lost opportunities. Front-runners are finding that yesterday’s supply chain tools and techniques were never designed for today’s modern business challenges and have begun to drive their digital transformation initiatives toward an emerging alternative approach.
Functional excellence does not translate into supply chain excellence
Just a decade ago, organizations had the luxury of long-term planning before tariffs were enforced. They had time to better understand the impacts such regulations would have on their business. Once governments enforced tariffs, organizations implemented their planning strategies to minimize negative side effects. Planners reviewed impacts and made adjustments as necessary.
Today’s timeline is considerably more condensed: new tariffs are announced and immediately enforced. Your company’s responses must be designed, tested and implemented in days and then rolled out across your entire network, from manufacturers to customers.
Under these circumstances, current best practices in supply chain fall short. Legacy supply chain planning techniques were designed to focus on functional excellence, isolating one part of the supply chain at a time, optimizing it, and then passing the results upstream and down. At first glance, this approach should result in a system that operates at peak efficiency from end to end. Practitioners would tell you that’s not the reality.
Siloed systems against sweeping challenges
Misalignment and mistrust between each function compounds to create operational inefficiencies in functionally siloed supply chains. Challenges such as tariffs that impact functions across your supply chain reveal these issues.
Your buyers order parts without awareness of the latest demand fluctuations. Your inventory manager releases newly-tariffed parts while holding inexpensive alternatives in storage. There is time latency and lost effectiveness as each function drifts further out of alignment. Ultimately, the cost of supply chain drift is margin and/or revenue erosion. When both of these are at risk at the same time and for the same reason, it’s time for a digital transformation.
Concurrent planning
To move at the speed of modern business, many organizations are adopting a game-changing technique known as concurrent planning. Concurrent planning is the process of making and managing synchronized plans across time horizons, business processes and organizational boundaries at the same time.
This is the opposite of the sequential planning approach that many companies have today. Instead of waiting for the person ahead of you to generate a plan before you can act, concurrent planning connects data, processes and people to collapse decision-making time and dynamically balance the end-to-end network.
When something unexpected happens in one area of the supply chain, side effects ripple through the rest of the chain. A shift in supply or a spike in demand has an immediate impact on the other functions and lack of visibility is no longer a valid excuse.
Consider the case of one global industrial manufacturing company impacted by the steel tariffs introduced in 2018. Historically, the company managed planning on disconnected spreadsheets by function and geography. After investing in concurrent planning, the vice president of supply chain gained the ability to determine the total cost of tariffs across all products. The company had visibility into its entire supply chain, so planners combined cross-functional data, like existing inventory, forecasted demand and planned receipts to determine, in a matter of hours, how the company would react and what it would cost.
Today’s supply chain leaders have stopped chasing perfection. Instead, they are focused on practiced agility: the speed to detect and the speed to correct malfunctions in their business. When a problem arises, leaders are empowered to make proactive, confident decisions. That confidence improves the company’s overall reaction times, which in turn frees up time for course corrections when larger disruptions occur.
This improved agility shifts the organizational mindset. Employees go from asking, “How can I prevent the unexpected from happening?” to “How can I quickly absorb the unexpected events that are inevitable every day?” In a rapidly-moving world, it’s this type of mindset that helps companies gain a competitive edge.
The value of concurrent planning
We’re all facing rapid changes on a global scale – from tariffs and political unrest, to weather events and consumer demand – but true leaders and innovators like Toyota, Lockheed Martin, Unilever, Ipsen and Schneider Electric are undertaking digital transformations with concurrent planning at their heart.
John Sicard is President and CEO of supply chain technology company Kinaxis. Find out more about concurrent planning in Thinking Differently About Supply Chain Planning: The Case for Concurrency