How the Cloud Can Solve Your Growing Fears About Supply Chain Risk

A recent Deloitte study about the risk posed by supply chain disruptions surveyed 600 executives regarding their feelings (and fears) of exposure to unexpected events in their global supply chains. The study found that 45 percent of global executives report their risk management programs are only somewhat or not effective at all.

Retailers can't afford to have vulnerabilities in their supply chain. In fact, 71 percent of survey respondents said supply chain risk is an important factor in their strategic decision making. Global supply chains become more brittle as they continue to grow in complexity, making the potential impact of these vulnerabilities more painful each year.

Part of the problem is that supply chains have gotten longer and more complicated as companies expand sourcing and selling in new regions around the world. At the same time, there's a constant push to outsource production while simultaneously running as lean as possible.

We all heard about what the Bangladesh fire did to the garment industry in November 2012. The decision to close 200 factories for fire safety review was problematic for retailers during the critical holiday season. As a result, supply chains were disrupted and companies couldn't meet the heightened holiday demand. As a result, they lost sales and ultimately missed their profit goals.

Unchartered Territory: Agility in the Omnichannel Supply Chain
The notion of an evolving inventory mix supported by a global sourcing model isn't new for retailers. However, when you factor in the push to open new stores in emerging economies in the era of omnichannel retail, the supply-demand matrix looks especially daunting. It's not a matter of if retailers should expand into new markets or become omnichannel masters, it's how fast it can be done. It's a matter of long-term survival.

Most companies know that the rigid supply chains of the past aren't capable of supporting omnichannel retailing. For example, Target announced in January it would be matching prices with online competitors such as Amazon.com year-round as well as honoring its own web prices in its brick-and-mortar stores in an effort to meet consumer demand with increased agility. Although it's far from a new concept, the ability to adapt quickly to disruptions and opportunities is critical, yet few companies have mastered it.

The path to operational agility hasn't yet been forged. Lots of companies are investing in technology to get them there, but most are making a fundamental IT mistake. They're trying to solve the agility challenge with the same business software they've been using for the past 30 years. Unfortunately, traditional business software systems come up short when it comes to supply chain orchestration on a global scale. Those systems were designed to work within a single company, not between the different companies and partners which make up a global supply chain.

Navigating in the Dark: Business Leaders Cannot Operate Blindly
Tomorrow's operationally excellent companies will operate as networks in cooperation with their global partners. The key driver is supply chain visibility. Deloitte's study found the top risks executives face to be sudden demand changes (53 percent); margin erosion (42 percent); cost increase and lost revenue, and physical product flow disruption (37 percent). Without real-time visibility across networks, companies are blind to finding these problems and addressing them in an expedient manner. Companies must be able to see inventory and information in real time across their supply chain networks, and partners must be able to see the same information.

Nearly half of the surveyed executives said they've seen the frequency of risk events carrying negative outcomes increase over the last three years. Clearly companies are struggling to find the solution to managing their risk. The answer lies with the connection between operational agility and visibility.

The notion of a central supply chain information monitoring system that connects networks to a single version of truth is far from reality for the majority of companies. This possibility does exist within the cloud, however. Retailers can no longer rely on an ERP system because the rate of change is too great for those hardwired networks to keep up. Companies simply lack the time required to rebuild their networks every time they change a partner or move to a new region.

The Cloud as an Information Utility: Key for Omnichannel Excellence
Cloud visibility platforms designed for intercompany network collaboration and information operate more like shared utilities, where partners can be turned on or off depending on specific needs. We're beginning to see published examples of these cloud systems at many companies across industries, including leaders like Adidas and Nestle. These are multienterprise systems that mirror a LinkedIn or Facebook model. They have advanced software capabilities that are web-based, but the real value is the networks that are part of the offering.

The key advantage with cloud platforms is their networks are many-to-many, which means once a partner joins, they can work with multiple customers through that same connection. And, as new enterprises join, they find many of their key partners already active on the platform. So rather than starting from scratch every time, the platform is more like an industry information utility.

It's hard to predict disruptions, but when they happen, success is measured in terms of how quickly and effectively a company responds. If you can't see, you can't make smart decisions. For retailers trying to make their supply chains capable of supporting new omnichannel strategies, the notion of a single pool of inventory is going to be hard to master unless there's a single informational version available for all to see. That can be found in the cloud through the device of choice.

The cloud holds promise for putting supply chain fears to rest.

Greg Kefer is the vice president of corporate marketing for GT Nexus, operator of the world's largest cloud-based supply chain platform. Greg can be reached at keferg@gtnexus.com.