In the current scenario, where the ongoing pandemic has slowed down businesses, innovations are happening faster to improve organizational flexibility and adaptability. To overcome this situation, businesses need to weed out outdated supply chain components and obsolete practices to move towards a more agile system.
Organizations that are still using traditional supply chain practices will increasingly face difficulties to streamline the end-to-end supply chain process. This is because obsolete practices will only increase the complexity.
For example, for electronic design and manufacturing supply chains, component obsolescence affects nearly all segments of the process.
Particularly, electronic manufacturers in the industries such as aerospace and medical traditionally struggle to manage component obsolescence. These days, no area of the electronics industry can be overlooked to achieve optimal business sustainability.
Identifying and replacing obsolete supply chain practices can help your business thrive.
Why are Traditional Supply Chain Practices Getting Obsolete?
Traditional supply chain practices are getting outdated, and they will eventually perish. The supply chain industry is already witnessing significant changes with the introduction of agile processes and smart technologies such as blockchain, artificial intelligence (AI), and automation.
The new processes and technologies will not only replace the obsolete processes, they may also end manual human-centric jobs, including analytical and managerial work.
One of the persistent and outdated concepts in supply chain management is obsolete stock. This term refers to a situation when inventory reaches the end of its product life cycle when a product has no demand in the market.
Manufacturing companies, which fail to forecast a downward trend in demand accurately or unable to re-align their stock replenishment strategy policies, often end up with large quantities of obsolete stock. All these additional inventories then just show up on the company’s balance sheet as working capital with little chance of any ROI.
The below graph is showing the stages through which a product inventory reaches the end of its life cycle.
Surplus stock may also be the outcome of fast-changing consumer trends, new technology, or the market may simply identify a product as useless. In both the scenarios, practical demand forecasting and effective inventory management should prevent this from happening.
The implementation of AI and robotics technologies, along with blockchain and the Internet of Things (IoT) is making traditional supply chain management practices obsolete. The term “traditional” refers to human intervention in a process and occasional use of outdated technologies.
The transition from outdated supply chain practices to futuristic processes and technologies began with the recent digitization of the manufacturing process called “Industry 4.0.” Subsequently, the integration of Industry 4.0 with the same optimization strategies in supply management has led to Supply Chain 4.0. Besides, powerful blockchain applications and AI have started an evolution to the next stage in the supply chain.
How to Lower Surplus and Obsolete Inventory
Take action before the surplus stock gets obsolete
It is crucial to track products throughout their life cycle. When the inventory reaches the obsolete stage, usually it is too late to do anything to make the products profitable. This is why the right time to take action is when the sales of a product begin to go downward. (Ensure that this decline is not due to seasonality). Accordingly, you can review and modify your reordering parameters to keep in mind the demand.
Besides, if you identify that your current stock is much higher than the forecasted demand, try to increase sales through your marketing/sales team before it becomes obsolete.
The key here is an effective inventory policy and a clear understanding of actual customer demand.
Liquidate obsolete inventory
Many organizations are uncertain and indecisive about what they should do with their obsolete stock and make the mistake of not liquidating it as soon as possible. Some companies simply keep their obsolete inventory in warehouses to avoid showing it as an expense or write-off on their quarterly report.
It is not easy for organizations to admit that their large investment in a potential revenue-generating product has become a liability for the business. However, not addressing obsolete inventory issues is an even bigger mistake. Liquidating an obsolete inventory and getting it off the books will help businesses free up warehouse space for profitable inventory.
Automate Inventory to Avoid Stock Obsolescence
Supply chain and inventory management systems can effectively track inventory movements. However, often even they are unable to identify how much is required to meet customer demand. To avoid keeping surplus and obsolete stock, make sure to optimize your demand forecasting, stocking strategies, and replenishment processes.
These days, the integration of blockchain and AI can easily automate these processes by applying advanced algorithms to help inventory management teams stock the right products in the right quantity. With easy tracking of a product life cycle, it is easier to identify and adjust replenishment and avoid the piling up of excess stock.
What about Dealing with Component Obsolescence?
Components in a supply chain become obsolete when the original manufacturer (OCM) no longer produces them. Low demand that reduces profit margins and discontinued technologies can prompt the OCM to put manufacturing on hold.
Watch out for Consumer Demand that Shortens Component Life Cycles
Consumer appetite and demand for better and smarter products result in shortened component life cycles. For example, nearly one-third of all household electronics purchases happen not due to the malfunctioning of the old units but because of consumers’ demand to upgrade. Besides, frequent product launches can reduce the life cycle of some electronic components. The smartphone industry is a good example.
The Best Practices for Managing Component Obsolescence
To manage component obsolescence issues efficiently, consider the following best practices:
Develop a Strategy to Manage Component Obsolescence in the Design Phase
Working with your product design team to formulate a strategy can help manage component obsolescence effectively. Before doing that, obtain crucial information for better insight into the product life cycle forecast. Avoiding spec-in products that have more chances to become outdated can lower the risk of encountering the obsolescence risk in the production phase.
Roll Out Practical Component Obsolescence Management Programs
When it comes to managing component obsolescence, there is no “one-size-fits-all” solution. Depending on the type of product, market demand, positioning, and anticipated product volume, the sourcing strategy for each component has to be unique. Implementing practical component obsolescence programs, along with using historical data, can help identify excess components. These programs will also help in providing the best price and warehousing options for components to be liquidated.
Replace Outdated Technology
It is ironic that consumers get benefits from new and advanced technologies to improve their lifestyle. On the other hand, supply chain businesses still depend on many obsolete, labor, and time-intensive systems.
According to an article published in the Supply Chain Digital magazine, new research shows that 85 percent of the workers in the UK believe they would perform more efficiently if better technologies were available at their workplace.
The article looks into the findings of a new survey carried out by “Webexpenses,” a cloud-based expense management provider. The major findings are below:
▪ Nearly 26 percent of workers desire to have better IT systems at their workplace.
▪ 16 percent of workers stated that the technologies they use in home are much better compared to the ones at the workplace.
▪ 14 percent of workers said that their companies depend too much on tedious paper-based processes, which is a major cause of frustration.
Partner with a Supply Chain Service Provider to Manage Component’s Inventory
A leading supply chain service provider can help your business source, buy, and secure inventory in warehouses complying with the highest industry standards. This collaboration will make sure the right quantities of components are available for manufacturing. The service provider can apply advanced technologies to track each stage of production according to the latest demand forecast. This way, there will not be any inventory of obsolete components piling up in your warehouses.
Focus Areas of the New Supply Chain Management in 2021 and Beyond
Achieving Efficiency through Automation
In 2021 and beyond, manufacturing businesses will mainly focus on the combined usage of blockchain, IoT, robotics, and data technology. They are likely to take a step toward building a new supply chain through digitized or automated versions of manual and monotonous tasks that occur in the supply chain. This will help supply chain systems to get rid of inefficient paper-based work with human intervention, which usually results in data loss and wasted time.
The initiatives for digitization and automation will involve all the aspects starting from computerized contracts to factory robotics. It will be possible to digitize all the manual functions and analog documents, and register them in a master database. That database will be accessible to new analytical tools, which will use machine learning and automation to make real-time optimizations possible by continuously expanding its data pool.
Shifting to More On-Demand and Agile Operations
Equipped with blockchain and IoT-based data management, machine learning, and AI analysis, supply chains can move towards more on-demand and agile supply chain operations. Dynamic planning and rolling out of advanced applications can work in real-time to identify internal (machine malfunctioning or degradation) and external (traffic, weather, regulation, etc.) factors.
Supply chains, integrated with blockchain technology, can also help using “smart contracts”. These are transactional-based programs designed to implement based on the exact status of a shipment. Smart contracts can further help to automate the entire systems using specific data points, along with a blockchain ledger.
A digitized and blockchain-integrated supply chain system helps in streamlining the following areas:
▪ Selection of supplier and Supplier Enabled Innovation (SEI).
▪ Routing, dispatching, and maintenance.
▪ Detection and rectification of points of failure and inefficiencies that increase costs.
▪ Transactions and exchanges.
Various human elements of supply chain management will fast become obsolete. Some jobs will indeed shift from humans to machines. However, new technologies are likely to create more engaging, and eventually better, jobs.
The need for human intervention in the supply chain will be more for building and maintaining high-tech and digitized systems. There will be an increasing need for machine learning/AI experts, blockchain developers, data specialists, IoT technicians, and robotics engineers. These will be the new major players which will define the human aspect of supply-chains.
Data Management will be the Key to the Future
To develop the next-generation supply chain management involves insightful data collation and management. There will also be the use of IoT sensors and scanners to increase the value of the available data. Smart products and automated services, with the help of physical sensors and internet connectivity, will create data sources like never before. This will help businesses track and record the real-time status of products throughout the supply chain.
AI and machine learning can then process the new data sets and create forecasts through accurate analysis. This is how the concept of predictive analytics plays a crucial role. Smart forecasting can further help to increase automation practices to streamline areas including inventory replenishment, delivery routing, and machine maintenance based on real-time data. This approach has so far reduced overall planning errors between 30 and 50 percent.
How Small and Mid-Sized Businesses (SMBs) Can Overhaul Their Supply Chains
A blockchain and AI-based supply chain is proving to be an effective solution for small and mid-sized businesses (SMBs). Particularly, the integration of blockchain can make existing supply chains simple, cost-effective, and highly efficient.
The blockchain technology works in sync with IoT, automation, and AI/machine learning for data analysis. Organizations can implement a blockchain-decentralized ledger to collate their data, use smart contracts for automation, and create transactional efficiencies.
Shifting from a traditional supply chain system towards the new Supply Chain 4.0 will require both financial and technological investments for sure. However, a reputable supply chain service provider can make that transition seamless through blockchain solutions that are economical, effective, and customizable.
Changing Trends of Supply Chain Management
An outdated and inefficient supply chain can affect every aspect of an organization. This is why businesses need to keep checking the changing supply chain trends and re-evaluate their current supply chain management and performance.
Companies that frequently initiate technology and process upgrades show the significance of supply chain excellence in the overall business strategy. It helps to manage impact growth, profitability, and customer service.
The following trends trigger major changes to supply chain design and performance:
▪ Demand-Driven Forecasting: As sources and capacities for manufacturing have increased, more companies have moved away from focusing efforts on plant-level production planning and are adopting more of a demand-driven approach to influence and manage demand more efficiently.
▪ Cost Improvements: Usually, product features, price, and brand recognition have been enough to create a product USP in the market. However, increased product innovation and brand equity no longer allow most products to command a higher price. To keep competing with the commoditized products, companies are making significant cost improvements with supply chain technology and redesign.
▪ Outsourcing: These days, many organizations are re-assessing their core competencies and realizing that outsourcing all or parts of a supply chain can yield major financial and operational benefits. Excellent innovations in the following areas make companies move towards outsourcing:
✔ Availability of advanced technologies and processes.
✔ Achieving cost and quality of the global manufacturing standards.
✔ Gaining product design capabilities by outsourcing works related to the supply chain.
Besides economic and operational benefits, in an outsourced supply chain environment, the focus is on information, controls, and excellence from the outset.
- Reduced Product Life Cycles: Currently, most manufacturing companies are in a hurry to develop innovative products and introduce them to market faster than ever. At the same time, they need to ensure minimized cannibalization of existing products that still have high demand. To fulfill these requirements, organizations need more dynamic and highly efficient supply chains to manage the product lifecycle processes.
The Role of Technology in Supporting these Trends
Over the years, supply chain networks have become more complex, and having improved supply chain technologies is the need-of-the-hour.
Supply chain management (SCM) and enterprise resource planning (ERP) solutions providers are providing solutions to address the critical areas of manufacturing and distribution companies. Some of those areas are:
▪ Manufacturing Optimization
▪ Procurement
▪ Product Lifecycle Management
▪ Network and Inventory Optimization
▪ Logistics Optimization
▪ Sales and Operations Planning
▪ RFID
▪ Business Intelligence.
These technologies have enabled supply chain specialists to innovate, reduce costs, improve service, and meet customer expectations for better products more than ever.
Besides, emerging technologies such as blockchain, AI, and IoT are helping supply chains become more transparent by delivering real-time data. These technologies enable manufacturing companies to identify process and equipment inefficiencies or other weak spots.
Most importantly, these technologies are minimizing human errors, helping to improve productivity and profitability by enabling employees to report instances in real-time.
Conclusion
Designing, manufacturing, and selling a product can often be challenging, even for the most established organizations. With the rapidly changing times, business objectives, processes, supply chain technologies, and management approaches should also change to maintain sustainability.
Organizations that re-assess their supply chain structure from the perspective of strategy, process, and technology, succeed in achieving supply chain excellence as a core competency at all levels. This is why identifying obsolete supply chain management practices and embracing innovative systems is the first step towards that goal.
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References:
https://a2globalelectronics.com/4-reasons-component-obsolescence-is-a-growing-part-of-supply-chain-management-and-how-to-manage-it/
https://www.sourcetoday.com/supply-chain/article/21867164/5-ways-to-address-component-obsolescence
https://www.eazystock.com/blog/how-to-manage-obsolete-stock/
https://medium.com/supplybloc/why-traditional-supply-chain-management-systems-are-dying-2b4f40478893
https://blog.gravitysupplychain.com/the-curse-of-outdated-supply-chain-technologies
