The global pandemic has shone a spotlight on supply chains as critical factors in business and society. While the pandemic has created some novel challenges, in many ways it has served to “stomp on the accelerator” of trends that have been gathering momentum for years: The growth of ecommerce, the need for more automation, and the virtualization of business and processes.
In recent decades, the driving factor behind supply chains has been cost reduction, spurring the global movement of manufacturing capacity to low-cost countries. The mantra has been: “Make in the East, sell in the West.” However, things are changing. Product and labor costs in those markets are increasing at the same time their domestic consumption is rising.
One of the crucial lessons of the pandemic is that resiliency – the ability to weather unexpected changes – is becoming just as important as costs. That’s why companies are intensifying their focus on getting closer to their customers and striking a better balance between where they produce and where they distribute. Fortunately, there is a tremendous number of emerging technologies that can help you do just that. All of them are enabling what we call the “zero latency supply chain.”
Think of latency in your supply chain as captured capital. Delays in moving materials or innovating products can have the effect of locking up the assets of your business in a non-productive way. Moving towards a zero latency supply chain frees up your assets, allowing you to make better use of your company’s resources, improve service levels for your customers, and become a more formidable competitor.
It’s important to realize that zero latency isn’t that same as “not having any inventory.” Preparing for the unexpected may require you to balance your inventory across different parts of your supply chain, helping you maximize efficiency but also addressing the need to be resilient.
Achieving zero latency requires new set of competencies. More efficient transportation and logistics to be sure. But also the ability to spot new business trends faster, innovate new products, and propel your company into new markets. And you need to do that with as little friction – and yes, little latency – as possible.
Ultimately, we see the economy heading toward a hybrid model where you’ll still see large-scale commodity production in low-cost areas, but a lot of the higher-value activity will inevitably move closer to the point of consumption. In many cases, that will lead to the creation of new small-scale, highly automated manufacturing facilities in domestic markets, including North America and Europe. Not only will this have a big impact on where you produce things, but it will have an additional impact on your distribution and logistics networks.
We’ve already seen the need for more decentralized distribution networks. Let’s face it, you can’t do next-day shipping across the U.S. if you only have two or three distribution centers covering the entire country. But to successfully manage a large, widely dispersed network, you need to have real intelligence about how you track and manage it, how you balance your inventory, and how you predict demand more effectively – all of which is needed to drive down latency in the network. Get the order in, ship it out, and the customer gets it the next day – or increasingly the same day. That is the zero latency experience customers are demanding. “Fast is the new cheap”.
Zero latency requires global systems that cover your entire enterprise and beyond, and that allow you to flexibly promise, cross-deliver, and pool your inventory and deliver the excellent level of service you need to differentiate in the marketplace. Companies that have invested in these new technologies and systems are the ones that will thrive in this new business model.
This is a challenging time and will remain so in the future. But it’s also a time of great opportunity. Soon we’ll be leaving this disruptive period, and that’s often the moment when companies trade places with the competition, for better or worse. It’s during these “exit moments” when companies that made the right investments are most likely to succeed in the next (hopefully more stable) period.
What this means is that if you are in the supply chain area of your business, now is the time to begin. Change takes time. And although the cloud can speed implementations, cultural change can take longer. That means the sooner you start having these conversations inside your business, the sooner you can start discussing the art of the possible.