Enhancing the Supply Chain Efficiency

Enhancing the Supply Chain Efficiency

In your opinion, how has the supply chain landscape evolved over the years?

There have been a wide variety of changes over the last couple decades. Outsourcing key supply chain functions has allowed for improved scale, higher levels of functional sophistication, and ultimately lower costs for many industries. Offshoring of production, either in conjunction with outsourcing or within the bounds of a company, has led many companies to be able to capture the benefit of lower unit labor costs, although this effect varies by industry. All of these changes have yielded benefits but have also led to a much more fragmented supply base, making it much more difficult to see and manage the entire end-to-end supply chain. In many cases the focus has been on optimizing the links of the supply chain, rather than the chain overall. This effect, along with the longer transportation times necessitated by offshoring, has also made supply chains less responsive to change in either supply or demand, or in other words, less resilient. Practically speaking, in this situation things work pretty well as long as there are no unexpected disruptions, but results degrade quickly when a problem occurs in even one link in the chain. One thing that the last few years has taught us is that problems can occur. From the pandemic to the Texas winter freeze to the tightness in the labor and transportation markets, we’ve had a series of crises to deal with all at the same time. Valvoline has always focused intently on building resilience into the design and operation of our supply chain, but even then, it hasn’t been easy. The technology and tools we use have advanced over that time, and this has helped, but adoption has lagged in many companies and industries for a variety of reasons, and so there are gaps remaining.

What are some of the advantages of the current technological evolution?

If implemented properly, some of the tools available today can help support day-to-day execution, while still allowing a company to better see and diagnose problems quickly. In our industry, Internet of things-type equipment, like remote tank monitors, have become affordable enough to allow use with even modestly sized customers. This gives us a real time signal we can use to more accurately predict demand and trigger local replenishment. It continues to become easier to integrate data streams with both customers and suppliers, which also helps us manage the entire chain, although challenges remain there as well. ​Supply chain planning systems are becoming much more powerful, and able to incorporate larger amounts of data, including data from the point of sale, into demand prediction models. With the advent of AI and machine learning, incorporating a broad range of other info to drive demand forecasts is becoming more common.  

What are some of the challenges plaguing to the Supply Chain landscape and how can they be effectively mitigated?

The last 12 to 18 months have brought a wide variety of disruptions to supply chains everywhere. COVID-19 brought dramatic volatility to demand patterns, then to the supply side, as the virus-related labor shortages affected production in many industries. Demand shifted between channels, as consumers opted for online shopping to avoid public places. Economic activity overall shifted, with some segments of the economy booming, and others, like the leisure industry, coming back more slowly. The Texas winter storm caused extensive plant shutdowns in many of the basic petroleum and petrochemical products that are the raw materials for so many products, including Valvoline’s, causing downstream shortages. Transportation and distribution systems strained under the load of heavy demand, and labor shortages affected most sectors. Products with long planning, manufacturing, or distribution cycles suffered the most from the demand volatility. Some of these changes willbe transient while others will be more permanent. The best way to mitigate these issues is to build resilience into the supply chain at the strategic, tactical and operational levels. This takes a considerable amount of planning, and sometimes requires that disciplined tradeoffs be made with resilience in mind. In many cases these decisions are difficult to change in the short term, which makes it even more important to understand the resilience effects at the outset. For example, it was very popular several years ago to offshore production of labor-intensive products to reduce costs and enhance margins. However, many of these decisions required long production and distribution cycles, which in turn reduced the business’s ability to respond to change in demand, that is, its resilience. Some of these businesses suffered greatly when demand volatility spiked after COVID-19. Many of these companies are now “near shoring” or even shifting production back to the U.S.            

Which are a few technological trends influencing Supply Chain today? What are some of the best practices businesses should adopt to steer ahead of competitors?

The quality of the technology tools available is getting much better, and their cost in many cases is declining to the point that most companies can afford to adopt them more extensively. Capable tools that help optimize a specific supply chain function, like transportation, vehicle routing, or manufacturing are very readily available, as are tools that look at the supply chain more broadly and provide supply chain planning, visibility, and optimization. The key is in understanding the drivers of business success first, then investing more heavily in the functions that make the most difference for success of the business. Capabilities in other areas should be good, but they don’t need to be world class. In Valvoline’s case, we’ve found that the ability to manage the supply chain end to end is a business driver so we have in the past, and continue today, to invest heavily in supply chain planning and visibility tools. We’re also investing in data and process integration with our customers, providing for example vendor managed inventory services to customers. Of course, the tools themselves are only part of the answer. Organization, culture, process and people are also an important part of the solution. For example, money spent on the most sophisticated S&OP software tool will not help if the company’s culture doesn’t reward teamwork, or accountability is not easily shared across organizational groups, etc.

What advice do you have for industry veterans or budding entrepreneurs from the supply chain space?

The pace of change over the past couple years has been tremendous.Many, if not most, supply chains have struggled to keep up. Even though the pandemic appears to be waning, at least in the U.S., many of the changes in consumer behavior and transportation trendswill continue.I expect the pace of change to remain high. Agility and resilience in the supply chain will be paramount for the foreseeable future. Begin with an extensive evaluation of the resilience of the current supply chain. Then, develop a deliberate plan to improve the least agile part of the chain. Technology tools should be an important part of this plan, but most of these changes will also require organizational, process and people development change to be successful.    

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