What are the biggest challenges facing supply chains today? And how do we overcome them?
The fundamental challenges in supply chain haven’t changed. They've just been exacerbated. They're more severe than what we've seen in the past. COVID was the last major disruption. Now we're going through tariffs and other changes. Disruptions are leading to more divergence in supply chains between what we thought the plan was going to be and how reality is turning out to be. But the fundamental challenges stay the same, namely volatility, latency and inefficiency. Let’s be clear about what is meant by these terms.
Volatility refers to the changes and the extent to which demand and supply are changing. And supply chain professionals are all about trying to deal with volatility, but the extent of volatility that is being introduced now is unprecedented.
Latency is about things happening in the supply chain, but supply chain professionals only finding out about it much later. Latency is the time that elapses between an event (e.g., a delayed shipment, a logistics problem, an inventory quality problem) and then somebody knowing about it.
Inefficiency, the suboptimal use of time and resources, is rife in supply chains. There has been a concerted effort to reduce inefficiencies in supply chain processes, yet many still remain. And all of these inefficiencies have been exacerbated in light of recent tariffs and geopolitical tensions.
Tackling the top three challenges in supply chain
Let’s start with volatility. Uncertainty manifests itself in the form of volatility. When you're unsure about which demand will stick or which won't, you're dealing with uncertainty all the time. Companies are dealing with the challenge of volatility by improving their ability to think about the world in terms of scenarios.
One of the companies we work with is a major semiconductor manufacturer in Europe. Many years ago, they said, “Look, we cannot predict the future, but we can be prepared for different eventualities.”
These are different scenarios, and that is the foundation on which I think modern supply chain management needs to be built. We need to enhance our ability to deal with various scenarios and range-based planning.
What if my demand were in this range? Where do I want my revenues to be in that range? Where do I want my margins to be in that range?
We need to think about scenarios and have a playbook ready if this turns out to be my reality; much like in football, I see how the defense is lining up, and I have an appropriate game plan. That's what supply chains must do as well. Some companies, especially some in the high-tech sector, have been very good at doing that.
The second challenge relates to latency. Ken Chadwick, vice president of research at Gartner®, at a recent conference, discussed the need for advanced visibility, specifically the ability to see what's happening with inventory and shipments, not only within your enterprise but across different tiers of the supply chain. This is where a lot of effort is being invested in supply chain management. We try to understand, “Can I see?”—because if I can't see, then I can't take appropriate action. Thus, it is essential to utilize technology that provides multi-enterprise, cross-tier visibility.
And finally, the third challenge, inefficiency. This is the age-old challenge of supply chain management. And what this comes down to is better technology-based algorithms, machine learning and agentic AI. This is helping people do more without adding to the manual burden.
Even after all these years of technological development and innovation, a significant amount of manual effort remains involved in supply chains. While it is early, good use of AI techniques, especially generative AI, is helping tremendously.
