Using Supply Chain Flexibility to Rethink Forecasts
Empty store shelves defined an era. Consumers, accustomed to convenience, suddenly couldn’t buy pantry staples. For many, it was the first time they thought about supply chain disruption.
For shippers, this was just the latest symptom of a larger, long-term problem: forecasting is hard. In this age of increasing disruptions, the perfect prediction is more elusive than ever.
Before the pandemic, the average forecast error was 50%. Even with the most sophisticated data processing and forecasting systems, companies were wrong half the time.
However, as Covid increased volatility, businesses (unsurprisingly) got worse at predicting what came next. In 2020, the rate of change for forecast errors increased 10x over 2019 to 54%.
Nobody could have correctly predicted 2020’s effects on supply and demand. Consumption plummeted, only to skyrocket in the following months. Ever since, businesses have scrambled, buckling supply chains in the process. From logjams at the ports to historically tight warehousing markets, every supply chain node faced duress in 2020 and 2021.
But, even as the pandemic fades, disruptions remain. In fact, fifty-six percent of retailers agree they occur more frequently now than in the past. And as they happen with more regularity, leading organizations focus on boosting supply chain flexibility and speed.
Instead of trying to predict the unpredictable, they test, learn and respond to disruptions fast with flexible solutions. Leaders know their forecasts will be wrong, so they wait to see how and where they are wrong and then calibrate their operation accordingly.
This new operating philosophy sounds simple enough. Though in practice, it swims against established supply chain principles and takes top-down buy-in. But once organizations leverage flexibility, they recognize this is the future of supply chain management.
How inflexibility compounded supply chain disruption
Historically, the logistics industry operated on predictability. It relied on lean principles and “just-in-time” inventory management. Supply chains centered on consistent consumer demand and faced relatively infrequent disruptions until the pandemic.
Covid’s shocks rippled through supply chains not designed for widespread, systemic disruptions. Assembly lines idled. Ports backed up. Shelves emptied.
It took years to resolve the systemic disruption because of long, rigid supply chains. Companies were stuck with fixed leases and assets that could not quickly adjust to changing market dynamics.
And while many of the challenges eventually lessened, they shouldn’t be considered isolated incidents. The pandemic merely highlighted a supply chain issue years in the making.
Supply chains’ rigidity and reliance on assumed consumer behavior created a perfect storm. Logistics functions faced both supply and demand disruptions. Because they could not meet at equilibrium, issues compounded at every part of the supply chain.
This difficulty led many to rethink how supply chains should operate. Business is now less predictable.
It’s time that companies build supply chains and logistics networks that adapt to volatility.
Revisiting supply chain principles
The core of supply chain management remains the same, however. Professionals aim to match their supply with consumer demand as efficiently as possible.
However, modern commerce forces companies to approach the matching process differently. Businesses can no longer rely on fixed, asset-heavy supply chains. Those that only leverage past principles lose revenue, lower margins and misallocate capital.
Given the failure of long, lean supply chains and historically-based purchase decisions, alternative approaches are emerging. Companies’ ability to react to sudden changes with speed hinges on their supply chains’ length.
As a result, regionalization and nearshoring are underway. But this process takes years, if not decades, to fully implement.
While many relocate their operations closer to their domestic headquarters, they also take measures to improve supply chain agility.
Leading businesses leverage this through structural supply chain flexibility. This organizational principle allows shippers to pivot quickly as market dynamics change.
Structural flexibility emphasizes rapid logistics pivots as market forces shift. Instead of making big bets based on historical data, businesses focus on a portfolio of strategies—from forecasting to execution.
Flexibility crucial across industries
From the NFL to the stock market, the best hedge their bets by diversifying risk. Instead of making an all-in gamble on a first-round pick or the latest bubble stock, the best organizations diversify. And they more quickly respond to unforeseen events. They pivot as scenarios evolve.
Organizations don’t need to try to predict the unpredictable. Instead, successful companies embrace uncertainty and focus on supply chain speed, agility and scalability. A flexible logistics model extends the reach of eCommerce fulfillment networks, rapidly replenishes retail locations and responds to supply chain disruptions and changing market dynamics.
Supply chain professionals no longer solely rely on forecasts or past events to predict future behavior. They make their companies as flexible as possible and admit that they don’t fully know what will unfold.
Leading organizations develop flexible and scalable supply chain strategies, allowing them to react when uncertainty arises.
Speed is critical to success in today’s business climate. It is the difference between one retailer right-sizing inventories and another reducing market value. This past year, some retailers paid exorbitant inventory holding costs that cut into profitability. Others promptly reduced stock to meet current demand.
That ability to pivot can determine a business’s success not only in a current earnings period but also in the future. Ineffectively reacting to marketplace dynamics can set an organization back years. Businesses that remain competitive incorporate supply chain flexibility.
Flexibility key to unlocking potential
Structural supply chain flexibility improves speed and reaction times in manufacturing, warehousing and transportation.
Rather than adapting over months and years, flexible supply chains quickly re-calibrate to reflect market changes and efficiently absorb supply and demand changes in real-time.
Supply chain leaders, strategists and partners accelerate the calibration speed between supply and demand to optimize supply chains and logistics networks.
This nimble approach allows companies to hedge against uncertainty and negative events. They also protect margins during sudden contractions and fuel scalable growth during a rapid expansion. Depending on market conditions, supply chain flexibility allows companies to scale up or down to meet demand.
Structural flexibility beats rigid forecasts. It’s the difference between merely surviving the next unforeseen disruption and thriving in it.
Jordan Lawrence is Flexe’s Director of Logistics Strategy. He brings 14 years of deep industry expertise—spanning manufacturing, distribution, transportation, and logistics technology. Previously, Jordan was Director of Strategic Accounts, and prior to Flexe, he worked in various consulting roles. Jordan has a Bachelor of Arts in Marketing and Business from East Carolina University.