You've Got the Whole (Supply Chain) World in Your Hands

29 April 2014 Manufacturing Industry Advisor Blog

It’s hard to believe, but you may soon be able to receive products before you even order them. Amazon and other retailers are exploring concepts like anticipatory shipping and adaptive stocking.

With these developments and others, like the rise of online shopping, two-day deliveries, and reduction in shipping fees, manufacturers world-wide have increasingly realized the need to provide customers with products quickly and efficiently. To meet customers’ demands, companies must ensure that there is sufficient stock to fulfill orders, because customers have plenty of buying options. If, for example, a certain pair of sneakers cannot be found in a store, a customer can go home and order his desired pair of sneakers from an online competitor who does have it in stock, most likely in any color or style of his choosing.

As I learned during my undergrad studies in supply chain management, many companies hold more inventory on hand than necessary to avoid the risk of finding themselves out-of-stock. Excess inventory, however, leads to waste and higher costs. To eliminate these inefficiencies, accurate forecasting and planning along the supply chain is necessary to achieve an optimal balance of supply to meet demand.

For a company to accurately forecast and plan, it must compile data and analyze the statistics gathered from the data. Risks associated with forecasting arise, however, if it is not done accurately. For example, lower forecasting can lead to insufficient products on hand to sell to meet customer demand. Conversely, higher forecasts can lead to high costs and extraneous inventory.

Other factors adding to the complexities in forecasting include:

  • long lead times
  • seasonal demand
  • promotions and incentives
  • product variety

To decrease these difficulties in forecasting, a manufacturer must increase the transparency of information across its supply chain, but also adequately protect it. A company must manage the risk of compiling vast amounts of information and protect its data. This sensitive data may consist of:

  • company and customer information, such as a company’s business practices
  • marketing information
  • customer response to incentives and promotions
  • customer purchase history

Along the supply chain, various parties may have access to this information. Suppliers, vendors, and distributors may all have pieces of this information to serve their part in getting the product to the end customer. Although this data is necessary to share with the various parties, the data and the analysis are sensitive. Companies must ensure that this information is adequately protected with robust backup systems, encrypted data, and limited flow of new data or intellectual property into countries with weak legal protections.

I was delighted to hear an expert from Loyola University’s Supply and Value Chain Center speak on this topic. John Caltagirone discussed some very interesting ideas with the folks involved in Foley’s Legal Innovation Hub® for NextGen Manufacturers.

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