We are living in interesting times. Europe seems to have turned a corner on the prevailing malaise and financial shocks of recent years. The emergence of Emmanuel Macron in France, who is once again championing a liberal and globalising attitude in Europe and the stability of Angela Merkel, suggests that this trend will continue.
In the UK and the US, however, economic uncertainty as a result of the political climate continues. Sterling in the UK has taken a knock and is driving inflation; in turn putting the breaks on consumer growth and squeezing spending. However, it is also driving the FTSE to new highs and could prove lucrative for UK manufacturers.
China is moving down the path of development and is more inward-looking. As the US takes a more domestic-focused position, politically, China may step in to the breach and look to drive a more global agenda in areas such as climate change.
This context is highlighting some key challenges for functions across all sectors but in particular it raises some interesting considerations for supply and operations planning. The five big challenges for 2018 are:
1. External shocks from across the globe
Modern supply chains are increasingly global and involve chains of supply spanning multiple and disparate countries, as well as complex suppliers. More involvement means that organisations are exposed to a wider range of risks and external factors than before.
Large scale disasters such as hurricanes, earthquakes or geo-political instability in key supply markets will require significant mitigation efforts.
2. A squeeze on efficiency
Organisations will continue to face pressure to find efficiencies in supply chain costs. The move to online channels and new approaches to supply, along with recent low fuel prices, have provided opportunities for some organisations to significantly reduce costs. Even so, supply chain managers will remain under continued pressure to find cost savings. Once the big ticket items are gone it will be down to continued incremental cost reductions.
3. Speed to market
Uncertainty and the increasing pace of change means that companies need to have a real-time view of demand and a good understanding of the future direction of demand for their market. They then need to react quickly to these changes and pivot to meet the changing circumstances. At the same time, they are under pressure to communicate and obtain consensus from senior management and the market on the direction of travel, and they have to consider and manage logistics and inventory constraints.
The work to bring the demand and supply problem closer means integrating inputs across functions and developing an integrated planning process which can model the impact of changes across the related areas.
4. The exponential pace of change
As companies diversify and globalise their manufacturing base there is an increasing complexity in optimising the production process. The answers may vary not just by location but by time too. It’s important to consider that new product introductions could also mean moving into new markets, necessitating a new mix of production allocation across sites.
5. Customer expectations
For retailers, technology-led companies like Amazon and Uber, have shown the possibilities of true on-demand, seamless services. An Uber is a click away and in most cases you can expect next day delivery as standard. Other companies are having to respond and we have seen a rapid shift to next day or same day service.
This shift in expectations means companies will need to consider their markets and may need a fundamental change in their operating models.
From a planning perspective this means that we can expect to see continued improvements and collaboration between functions, with more real-time connected plans. Companies with siloed processes are not able to adjust quickly enough to capture the market opportunities.
In summary, what we are seeing is that the supply and operations planning processes will continue to integrate more closely across the business and become more integral to the overall strategy and direction of organisations. Companies who wish to remain nimble and efficient will move to a more frequent planning cycle and have the ability to model and report on changing market conditions and other external factors. At the same time, other functions like marketing, sales and logistics will provide regular inputs to ensure greater alignment and get closer to the customer.
Increasing scrutinity and reporting will be required from senior leadership and analysts to ensure effective communication and expectations setting externally, while also providing inputs to the continually moving strategy.