What supply chain developments and trends will shape 2025? If we learned anything in 2020, it’s that predicting in January what will happen in the weeks and months ahead is a fool’s errand. All we can say for sure is that 2025 will be unpredictable, risky, and full of exceptions. That said, there have been a lot of lessons learned the past few years that companies can apply moving forward to manage their supply chains more effectively. What are some of those lessons learned? How can AI and real-time data help companies to navigate 2025 and beyond successfully? Those are some of the questions I asked John Lash, Group Vice President, Product Strategy at e2open on a recent episode of Talking Logistics.
The Lasting Impact of the COVID Pandemic
You’d have to be living under a rock not to have some notion of the impact the pandemic had on supply chains for both practitioners and consumers. So, I began our discussion by asking John what the lasting impacts were from this multi-year event.
John notes that, “Supply chains were pressure-tested in ways they had never been before. All areas, including demand, supply, and transportation. were pushed to the limits at the same time, and in some cases, to the breaking point.”
John shared some insights from e2open’s Forecasting and Inventory Benchmark Study, which the company has been publishing annually for 14 years:
“We track order cuts as part of the study. So, think of instances where there’s insufficient supply or transportation capacity to meet demand, and we saw that cuts exploded during the pandemic in terms of frequency, intensity, and duration. It’s no surprise that order cuts related to demand shocks peaked in April 2020 as the pandemic took hold and we were shifting into lockdown mode. It increased four times the baseline, so that’s a huge jump.
“Then in late 2021 to early 2022 came the supply shocks where we saw another peak in order cuts. This one was even bigger — it went up five times the pre-pandemic baseline. This time the root cause was supply constraints and the inability to get raw materials.”
John adds, “While order cuts eventually stabilized, they settled at a rate that’s around 40% higher than the pre-pandemic baseline. To make a long story short, the pandemic has made running a business measurably harder.”
Flaws in Supply Chains
An interesting impact of the pandemic was that after many companies had worked so hard to be demand-driven, suddenly they faced huge challenges with supply. I asked John what other flaws the pandemic exposed.
John comments that with all aspects of the supply chain stressed by the pandemic, many things broke. “It showed that what had been good enough for decades is no longer good enough.”
He points out that traditional demand planning, which is based on historical patterns, can be meaningless during times of high demand volatility, such as during the lockdown.
“One of the biggest challenges is the volume of business exposed to extreme error,” says John. “Extreme error is the defining characteristic of the pandemic. Extreme error is when your forecasts exceed or fall short of shipments by a factor of two or more. During the pandemic, extreme error spun out of control. At the April 2020 peak caused by panic buying, nearly half of all volume was exposed to extreme error.
“This extreme error is very costly and disruptive to supply chains, and it took four years to go and recover back to baseline levels.”
“Why is it important to look back at the impact of the pandemic? Because it exposed all the supply chain flaws so we can be better prepared, because another major disruption is certainly coming.”
Can Artificial Intelligence Help?
Can AI and real-time data help deal with disruptions?
John commented that “at the start of the pandemic, some folks voiced concern that AI can only be helpful if it has ‘seen something before,’ and since we had never seen anything like the Covid-19 pandemic before, it would be better to turn AI off.”
However, John explained that the difference is that AI can use real-time signals from within your operations, such as orders and shipments, along with downstream information, such as point of sale, store inventory, and warehouse withdrawals, to forecast what your customers are likely to buy, not just what you hope they’ll buy. The result of keeping AI on was better forecast accuracy during every phase of the pandemic. It reduced forecast error by about 35%.”
“It also tripled the value from planning investments in people, processes, and technology,” said John, “as well as reduced the incidence of extreme error by 60%. Thus, AI and real-time data are essential to managing risks during major disruptions, even those of pandemic scale.”
The New Era of Supply Chain
What defines this new era of supply chain management? John shared some great insights and advice on that question and more, such as the impact of AI on network collaboration, the long tail of the supply chain, and what companies should do now to prepare. Therefore, I encourage you to watch the full episode, and also download the 2024 Forecasting and Inventory Benchmark Study, for all the details. Then keep the conversation going by posting your questions or perspective on this topic!
