I'll admit it – I'm a supply chain nerd. Over 30 years of calling on IT distributors will do that to you. In the beginning it was all about marveling over those massive distribution centers, their cool conveyor belt technology and yes, dreaming of one day actually tooling around one of those centers in a forklift!
But 2020 changed my views on supply chain. The fragile nature of many of our supply chain systems came to light and I believe has caused a lot of others to revisit their views and priorities in this space as well.
Distribution Cracks Appear
Forrester analyst, Alla Valente stated in her February blog:
“If 2020 taught us anything, it was that as consumers and business leaders, we underestimate the pivotal role of the supply chain until we’re inconvenienced, or we run out of toilet paper. It also taught us that supply chain risk is business risk. If the mechanisms, processes, and partners that power our value chain suddenly come to a grinding halt and we’re unable to deliver to our customers, then effectively, we have no business.”
In the past, we relegated supply chain stuff to the professionals – the folks that ran Operations, Logistics, and Warehouses – and tasked them to run the most cost-effective, leanest operations possible. We celebrated just-in-time models that slashed inventory levels to the lowest possible levels while keeping manufacturing and supply lines running on a tight rope.
That came crashing down in March 2020 as shelves emptied and many were scrambling to find essentials. Who could have ever imagined that toilet paper would be treated like gold! Is there any company out there still bragging about their “Just in Time” inventory model?!
In 2020, the realization dawned on many people that the future requires a much more balanced approach to supply chains. The words flexibility and resilience are now fundamental elements of the supply chain conversation.
“The pandemic put global supply chain networks in the spotlight. It highlighted their weaknesses and flaws.” Gartner
Supply Chain’s Impact on Our Lives
As we hurdle ever quicker towards a post-pandemic world, we are seeing in real time how supply chains can have a huge impact on our lives. Think about it:
- The manufacture and delivery of BILLIONS of doses of Covid-19 vaccine is arguably one of the planet’s biggest supply chain undertakings. Every country is closely watching how this massive and incredibly complex process rolls out. For a better understanding of the magnitude of this supply chain task, check out this NPR Planet Money podcast.
- The impact of product shortages is more far-reaching than ever before … and I’m not talking about toilet paper! Today’s products are so reliant on a range of components from diverse manufacturers that one shortage can create significant ripples across multiple industries.
- An end to mass customization? Many manufacturers are now pushing their channel partners more towards stocked, Build-to-Order models vs. the Configure-to-Order (CTO) options that had become the norm.
- How about the promise of e-commerce and shopping from home? This dream hit a serious shipping and delivery speed bump last year as systems were overwhelmed and unable to cope with the spike in volumes. (Anyone else receive a Christmas gift halfway thru January???)
What are Distributors Doing?
When the pandemic hit, technology companies and their distributors played a pivotal role in helping companies get work-from-home programs in place … and fast. I’ve talked before about how nimble distributors are, and this was showcased again in a big way in 2020.
As we look ahead, supply challenges will remain, and the impact of extended lead times will continue to be felt. In my conversations with some of the major distribution companies in our ecosystem, we are hearing a common theme – they are looking to control the things they can, while creating contingencies for those they can’t (such as backups at the world’s major shipping ports).
How are I.T. Distribution Leaders Assisting?
- They’re ordering more – a lot more. Many distributors report having >$1B in client devices on order right now, to ensure they won’t be caught short again.
- They’re stocking more – the days of having 21 days of supply are gone, at least for now.
- They’re warehousing more as they hold onto product for partners after purchase to assist if other elements are delayed. For some distributors, this has meant significant investments in new distribution centers and building out capacity.
- They’re reviewing and adjusting forecasts more often. At the same time, they’re looking further into the future so they can advise manufacturers much earlier of changing demand.
- They’re financing more – offering extended terms and other creative financing vehicles to help partners and customers through the uncertainties of 2021 supply challenges.
- They’re communicating more – talking openly about transparency in the supply chain and the value of increasing communication so everyone knows current lead times and can respond faster as issues arise.
What Does the Future Hold?
“To be relevant in the new world of digital natives, subscription models, and direct-to-consumer businesses, distributors with deep industry expertise must reorganize themselves to aggregate, facilitate, and orchestrate ecosystems of value creation.”
Jay McBain, Forrester
We are seeing that reorganization and shift in priorities for supply chains taking place at an accelerated pace among leading distributors with these themes topping the agenda:
- Supply chains need to be transparent and resilient. Now more than ever distributors and partners need better visibility as to when products will arrive, when delays are expected and communicate those timeframes to partners.
- At the same time, we need to continue efforts to reduce friction in the supply chain to create a truly integrated and seamless network.
Are we there yet?
While progress is being made (and we saw evidence of innovative responses during the pandemic), Gartner says “supply chains are still a long way off from being truly interconnected in real time so that they can rapidly see when immediate actions are required.”
My LinkedIn series over the past few years has focused on how IT Distributors are evolving and changing. Maybe one of the realizations of the 2020 pandemic year has been that as Distributors continue to evolve, they can't lose track of their roots – who they are and the important function they provide.
The challenge for IT Distributors is this: How to evolve to provide value and functionality without losing sight of their vital role – keeping the supply chains for the world’s Information Systems running efficiently.