The end of the year is always a time when we look back and look forwards simultaneously. 2021 has been a strange year to say the least and it appears that disruption of business networks is going to continue through into 2022.
With this in mind IgniteSAP is going to take another look at the reasons for supply chain disruption, and also discuss some comments by SAP thought leaders on what to expect in 2022 regarding trends in Intelligent Spend Management and Business Network.
Firstly let us address the causes of supply chain disruption, and extend the usual definition of supply chains to include the network of logistics and delivery of products as these can also suffer from disruption.
It is not enough to say that it is clear that the pandemic is causing disruption of supply chains. If we want to take action to mitigate these effects then we must dig a little deeper in our analysis. While it is true that the Covid-19 pandemic is indirectly a cause of supply chain breaks and delays it is not the only factor to consider.
The Linear Supply
The structure of existing supply chains could be considered a substantial contributing factor. The weakness in linear supply chains is that there are only one or two options available if a primary supplier is unable to fulfil an order. Creating a large network of suppliers can help to provide flexibility and agility to react quickly when things don’t operate as they should. The problem is that supplier relationships take time and money to maintain and so minimising networks seemed to be a preferred option for some businesses.
This minimising tendency of businesses is also responsible for breaks and delays in another way. Just in time supply chains appeared to be the most efficient use of warehousing but this also meant that business were increasingly dependent on faultless supply chains.
Shorter supply chains are now becoming more preferable because the more links in the chain, the more potential for a weak link. Geographical proximity can reduce the lead time waiting on supplies and products, which also helps the whole business network.
Labour shortages can also contribute to disruption. In the UK, as with many countries, there was a shortage of truck drivers but this was made worse by the exit from the EU just before the pandemic.
Customers can be a source of disruption as consumer behaviour is linked to events in the real world. Consumer behaviour became erratic as the pandemic took hold. Despite food retailers reassuring customers there was no lack of food they were forced to admit that they were unable to cope with sudden changes in customer purchase behaviour in the form of panic buying: resulting in empty shelves in supermarkets even though there was sufficient stock in warehouses.
Given the various threats to supply chains and business networks it is necessary to get as much visibility in to the system as possible, in the first and second tier of suppliers. Then supply chain managers can not only react to changes, breaks, and delays in the network of supply, but also predict where these may be likely to occur and put in place potential second and third options for each supplier.
SAP Supply Chain Management
SAP Ariba is a platform for realtime communication about the status of supplies within the network of business employees, extending to 2nd tier suppliers and much further. The constant exchange of information reduces latency in supply chain network communication, and so drives efficiency in fulfilling customer orders. Ariba also facilitates supply forecasting and planning which will be crucial to the process of adapting to any potential shortages caused directly by coronavirus variants like Omicron, or due to any temporary government lockdown and quarantine procedures.
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Another solution that addresses the supply chain, SAP Integrated Business Planning for Supply Chain (SAP IBP), is a cloud-based solution combining sales and operations planning, forecasting and demand, response and supply, demand-driven replenishment, and inventory planning.
SAP Leaders on Supply Chains in 2022
SAP executives were recently asked for their predictions for the state of supply chains in 2022 and they contain some fascinating assessments of what to expect.
John Wookey, SAP’s president of Intelligent Spend and Business Network, pointed out that businesses do not operate in a vacuum and companies are dependent on each other across a globally networked economy.
“To adapt to ever-changing business challenges, procurement and supply chain leaders will increasingly look to cloud-based and network-aware solutions to deliver the innovation they need to continually align their spend strategy to their business strategy.”
Sustainable Supply Networks
Etosha Thurman, the chief marketing and solutions officer for SAP Intelligent Spend and Business Network commented that disruption is now the new normal and so companies need to ensure resilience with a sustainable supply chain.
“An integrated spend management approach spanning procurement, external workforce and travel and expense management, will provide customers with the visibility and agility they need to adapt to changes in their markets while continuing to drive their business objectives.”
Jeff Collier, SAP’s chief revenue officer for Intelligent Spend and Business Network said that one effect of the pandemic has been to change procurement from an exercise in efficiency into a strategic role
”As we enter 2022, many procurement leaders are tasked with aligning every spend decision to their overall corporate strategies. To best deliver on this responsibility, these professionals will need an integrated view of total spend across the enterprise and deep into their supply chain. This level of visibility will enable the necessary information sharing and collaboration needed to contribute to stronger business benefits, including better inventory management, more predictable lead times, alternative sources of supply, stronger supplier compliance, and, of course, continued cost savings.”
The Human Element
The chief technology officer for SAP Fieldglass Solutions Vish Baliga emphasised that business will need to “master external workforce management and maximise talent utilisation” as the fluidity of the workforce means businesses will need to hire more temporary workers and freelancers over the next two years.
“With this comes the need for leaders to have complete visibility into their usage of external workforce to make more calculated, timely decisions about who is doing the work, at what cost, where, and for how long. Digitalising and automating external workforce management processes and improving visibility will help companies reduce inefficiencies and gain the most value out of its flexible resources.”
Paige Cox, senior vice president and head of business network said that linear supply chains are no longer effective and companies will need to put into effect cross-company collaboration and transparency.
“A digital network approach can transform fragmented supply chains into unified, collaborative, intelligent networks for supply, logistics, asset management, and service. With tighter collaboration between trading partners on a trusted network, companies can better anticipate shifts in supply and demand, deepening their competitive edge in the face of profound disruption.”
Baber Farooq, head of market and solution strategy at Procurement Solutions, SAP said that in 2021 procurement organisations moved from simply managing and optimising processes to becoming pivotal in solving critical business problems.
“In 2022 procurement professionals should be bold in embracing this mandate and propose solutions that help companies navigate troubled, uncertain waters. Creative procurement solutions can address some of the biggest challenges businesses continue to face today”.
Disruption is the New Normal
These insights into what trends and challenges to expect in procurement and supply chains provide some measure of the size of the problem. If we were to pick one quote to represent the whole then it would be “disruption is the new normal”.
So if we are to expect the unexpected, more dynamic supply chains are going to become necessary. The phrase “supply chain” should therefore be substituted for “supply network” and “business network” in its widest sense. A chain is something in which all links are dependent on each other and so is only as resilient as the weakest link, but a network is not made redundant if one link is broken.
Realtime Modelling and Relationship Networks
The dynamic supply network needs careful realtime modelling and a centralised decision-making process based not only on the needs of the business but also to the changing demands of the customer. Under ideal conditions this network should be predicting demands but able to adapt to unforeseen changes in the business context. SAP IBP and Ariba are the key components in managing this supply network because they fulfil all these criteria. SAP Fieldglass can cover the human resources aspect by facilitating a dynamic workforce to compliment the changing needs of the supply network. We should point out here that a supply chain is a human chain and so the importance of people and relationships to establishing a resilient and dynamic supply network is paramount.
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