How to Combat the Uncertainty and Risks in Today’s Global Supply Chains

Whether it’s the escalating tariffs between the U.S. and China, what’s happening (or not happening) with Brexit in Europe, or the status of “New NAFTA” and other trade agreements, one thing is clear: there is growing risk and uncertainty in global supply chain management. How are leading companies navigating these risks and uncertainties? That was the focus of a recent global study conducted by LLamasoft. In a recent episode of Talking Logistics, Razat Gaurav, CEO of LLamasoft, shared some of the insights from this study and provided recommendations on actions companies should take to prepare effectively for whatever happens in the weeks and months ahead.

Why now?

Before we discussed some of the key findings and recommendations from the study, I asked Razat what drove them to conduct this particular study at this time. Razat echoed my comments above about all of the current uncertainties in the marketplace and indicated that LLamasoft customers are asking them how to respond. LLamasoft, therefore, decided to ask leading supply chain decision-makers (about 725 in total across five global regions) what strategies they were deploying to adapt their supply chains to the looming risks and uncertainties.

Economic Nationalism

Two of the biggest supply chain challenges uncovered by the study are the age-old problem of taxes and duties and the more recent trend toward economic nationalism. I asked Razat to elaborate.

“Globalization has been happening for 5,000 years,” says Razat. “Very few companies today are not impacted by globalization, either through direct operations or because of their suppliers. And the policy inclinations of governments around the world are always changing. Manufacturers, retailers, distributors and third-party logistics providers are at the receiving end of these shifting policies and have to react.

“One of the interesting things that came out of this study was that only 47 percent of the respondents say they anticipate making changes to their supply chains based on these policy changes and trend toward economic nationalism, though it varies by region and vertical. So, many companies are still grappling with the changes and uncertainties.

“An important way companies can deal with this uncertainty is scenario planning,” continues Razat. “Although scenario planning has been around for over 30 years, the amount of data from internal and external sources that is available today is unprecedented and can be used to create a digital representation of the physical supply chain. That ‘digital twin’ can uncover the complexities of your supply chain and mathematical models can be used to play out various scenarios. This helps decision-makers understand what situations might occur and what the best responses could be.”

A data foundation, talent and risk

What are companies doing to respond to current uncertainties? Razat says it all starts with creating a data foundation, a single system of reference, upon which the scenario planning can be used to look at the trade-offs and interdependencies between production, inventory, distribution and transportation.

“The second thing we must concentrate on is the talent available within the supply chain,” says Razat. “Despite technology’s power to create value by enabling better and faster decisions, you still need people to take all of the complexities of the supply chain and put them within the context of a digital model. That is a skill set where we are deficient today. It requires a detailed understanding of the complexities of supply chain operations combined with a working knowledge of mathematical concepts. Those skills are very different than what was needed in the past and the gap in talent is increasing.

“A third area of interest is risk,” continues Razat. “When you create a digital model of your supply chain, all of the areas of risk come immediately into focus. Along with seasonality and cyclical trends, you have to be able to plan for how to handle possible problems when things go wrong at these risk points. A robust ‘what if’ capability is essential for modeling these scenarios and potential solutions.

“The problem is that planning systems are designed for operational efficiencies. But the economic equations used to implement those systems five or ten years ago are completely different today and are continuously changing. That is why a robust ‘what if’ capability is so critical.”

Are you a leader or a laggard?

As a way to wrap up our discussion, I asked Razat how companies can determine if they are a leader or laggard in handling uncertainty and risk, and therefore, what their next steps should be. I encourage you to watch the full episode for his thoughts on those questions and more,

including: Why isn’t a single system of record for supply chains possible and what is a single system of reference? Why is inventory buffering for the current economic and trade uncertainties anathema to efficiency? How can companies address the talent gap? After watching, post a comment and share your perspective on this topic!