Life on a Chain: SCA Technologies Details Latest Supply Chain Trends

Tightening and broken supply chains are at the very top of every manufacturer's concerns, creating obvious and hidden impacts that threaten business and trade.

We talked to Vishy Visweswaran of SCA Technologies to provide insight on this ever-changing trend.

SCA Technologies is the leading provider of Intelligent Cost Management solutions. Its methodologies focus clients’ enterprise processes on anticipating changes and taking timely action. SCA's solutions predict the impact of changes in demand and operations on revenue, cost and profits that drive decision making to improve results in anticipation of changes.

Who better to provide a real-time look at this crisis? Where are the pinch points, dangers and opportunities? 

OnRAMP: Tell us how SCA helps companies manage their supply chains?

Vishy Visweswaran: Supply chains are more complex than ever. Our platform, SCA Planner™, was introduced in 1999 to provide end-to-end visibility and the analytical tools to design, monitor and manage supply chains in real time. SCA Planner™ has capabilities for pricing, capacity planning, sourcing optimization, cost of goods forecasting, commodity risk management, and supply planning and execution. It has been used by Fortune 500 companies such as McDonald’s, Yum! Brands, Heinz, NCR and Eaton to drive down costs, respond faster to market changes, reduce commodity risk and improve team productivity. We’ve consistently demonstrated returns of 2X to 20X within 18 months of implementation.

OnRAMP: How did the pandemic create such disruptions across seemingly all supply chains?

VV: The supply chain disruptions we’re seeing are the result of a perfect storm between long-term manufacturing trends and more recent triggers such as the pandemic and geopolitical events.

Long-term trends
Since 2000, many manufacturing sectors have undergone consolidation, capacity rationalization and moved to just-in-time inventory. This has resulted in supply chains built for perfection with limited flexibility to handle contingencies. We’ve also seen increasing shortages in warehouse and driver labor and tractors and trailers to haul freight. To top it all, most supply chains today are global and interconnected, meaning that any disruption in one location has a ripple effect all the way to the consumer.

Pandemic effect
The pandemic triggered unprecedented changes in demand and supply disruption at the same time. Supply recovery was often temporary and lacked reliability for inventory planning to meet uncertain demand patterns. Labor, a critical component of supply chain execution and reliability, was in short supply - due to lockdowns in the early stages, and more recently due to the “big resignation” wave. Lack of ocean containers, tractor-trailers and port constraints slowed down the flow of raw materials and key components, and increased lead-times. Finally, the Ukraine war has reduced supply and increased prices of commodities such as wheat, oil, nickel and zinc. 

OnRAMP: Are some industries being impacted more than others? 

VV: Industries have been impacted differently based on demand changes for their products,  raw material sources, labor needs and freight. A few sectors have seen outsized impacts: 

a. Consumer staples including food, which are often labor intensive (e.g., meat packing plants). While most companies have recovered, they are still not at peak capacity, and have also been adversely affected by high commodity costs. 

b. Automobiles and home appliances that rely on older-generation semiconductor chips. These are in short supply because chip manufacturers such as Taiwan Semiconductor and Samsung have prioritized investments in next-gen chips for phones and graphics cards.

c. Homebuilding and construction are heavily reliant on lumber and steel, which are in short supply. There continues to be labor shortages even as demand for new homes stays high.

d. Hospitality and travel is very labor intensive, and has struggled to meet pent-up demand.

OnRAMP: How are companies managing around the disruptions?

VV: We were all caught off guard by the pandemic. Companies responded with a strong sense of urgency to manage with limited resources. In the early stages, it was about ensuring supply in any way possible with existing or new suppliers, simplifying their products and services offerings, and changing service levels to operate within available capacity and labor.  There has been a significant increase in “What if…?” questions being asked, whether it is around new service levels, right-sizing inventory for this abnormal operating environment, or preparing for additional contingencies. 

Manufacturers have tried to increase flexibility and—where needed—allocated scarce capacity towards higher margin segments. Logistics service providers are busy working with companies across all industries discussing capacity, capacity agreements and capacity flexibility. We also see double-ordering and price escalations to capture demand for premium or limited supply items.

OnRAMP: When will we see any normalization?

Long-term trends were already transforming each industry; the pandemic simply revealed hidden supply chain weaknesses. As we come out of this period, each industry needs to evolve to a different "new normal." 

VV: The road to normalization will be bumpy as companies deal with ongoing demand volatility, high commodity prices, a tight labor market and geopolitical risks. We are seeing some signs of easing, with retailers reporting rising inventories, but we’re unlikely to see anything close to normal until 2023. There is a possibility that rising interest rates will trigger a recession, which will bring down demand and temporarily alleviate some supply chain constraints, but this is not a desirable outcome. 

OnRAMP: What trends do you see coming down the road that we should be thinking about?

VV: Supply chain has moved from a backroom topic in the 90s and 2000s to a boardroom topic in the 2010s to a dinner table topic due to the pandemic. A few trends we should watch:

a. Automation will become a higher priority. The level will be different by industry.

b. Supply chains will become even more global and interconnected. The exposed fragilities are not going away;  companies need a more robust way to manage it and build resilience. 

c. Mobile ordering and delivery are here to stay.

d. Delivery automation and higher use of robots within warehouses.

e. Labor shortages will continue. Along with manufacturing and distribution labor challenges, there’s a huge shortage of experienced talent to manage supply chains. 

OnRAMP: What are some of the basic steps businesses large and small can take to better manage their supply chains?

VV: The pandemic has created a once-in-a-lifetime opportunity for companies to strengthen their supply chain and make it more resilient. Some areas to focus on could be:

a. Cross-company collaboration - increase engagement with suppliers and customers to better understand capacity flexibility and risks. Reduce partner and geographic concentration risks.

b. Manage with information and transparency - real-time visibility to products, costs and capacities.

c. Automate business processes - free up scarce supply chain personnel to drive the business rather than perform repetitive manual activities or chase after data.

d. Exception readiness - incorporate a range of sourcing scenarios so that the supply chain team and assets can respond to contingencies with the right combination of inventory and excess capacity. 

e. Find the right partners - long-term, strategic and willing to share in the risks and rewards. Building resilience requires large investments today that will reap benefits in future years.