SUPPLY CHAIN IN EMERGING MARKETS: HOW ISIMPLAN AND DDRMP CAN BE USED TO MITIGATE SUPPLY CHAIN VOLATILITY

Supply chain volatility is a term that is often used interchangeably with supply chain variability [1]. It’s also a term that is being used more frequently as supply chains grow in size and complexity. But what exactly is ‘supply chain volatility’? This is a question that has been asked repeatedly by supply chain professionals and academics, to the point where a conceptual framework has been developed to attempt to align all the different definitions out there [2]. Regardless of the definition used, the result of supply chain volatility is that organisations fail to get the right product, to the right place, at the right time, and for the right price. In the African Market sources of variability are extremely varied and can come from within an organisation and from external sources as listed below. With so many sources of variability in an emerging markets it’s no wonder that growing an organisations’ presence in that market is challenging [3], [4]. Supply Chain Barriers in African Emerging Markets (Adapted from[5])

1. Geographic constraints in the form of access to multiple transportation modes (sea, inland waterway, rod and rail) and the physical location of the market base, including distances between these and established transportation routes.
2. Instability (economic, political, social, etc.) leading to high variability. This is often linked with high risks and a lack of security.
3. Political and regulatory barriers can come in many forms, including corruption, lack of legislation and/or transparency and sudden policy changes.
4. Limited transport and logistics infrastructure which can be of poor quality where extant.
5. Lack of supply chain structure resulting from a fragmented supply chain and narrow supply base.
6. Market structure variability including customer disposable income and local competitors.
7. Poor strategic supply chain planning.

The best way for organisations to combat volatility, regardless of the source, is to start taking a proactive, rather than reactive, approach to supply chain planning. While it is impossible to plan for and guard against every perceivable source of volatility, there are methods which can be employed that can lessen the effect of variability on supply chain performance. One of the more common methodologies for reducing the impact of supply chain volatility is to shift from push driven supply chain planning to pull driven supply chain planning [1], [6], [7]. In the African market the need to adopt a more demand (pull) driven planning approach is evident as more organisations shift to a customer-centric operational model (Barloworld Logistics, 2015). This is seen in the pharmaceutical industry, where ensuring that the supply chain moves efficiently and can be a matter of life and death [11], [12]. Forecasting has long been used as a technique to anticipate customer demand and plan accordingly. This method has been shown to be inaccurate at best, and more often than not has a negative effect on inventory, as well as on customer service levels [13], [14]. The inherent inability of forecasting to predict demand has left the door open for the development of demand driven strategies which allow organisations to respond to actual demand fluctuations in real time [13], [15], [16]. A methodology which has garnered a significant amount of attention recently is that of Demand Driven Materials Requirements Planning, developed by Carol Ptak and Chad Smith [17], [18]. Demand Driven Materials Requirements Planning (DDMRP) uses the placement of strategic, dynamic inventory buffers to mitigate the negative effects of demand volatility. These buffers are NOT safety stock, rather they are defined by the average daily usage of an item, it’s lead time, variability in its’ supply and variability in its’ demand [18]. By capturing all the volatility data intrinsic in these parameters, strategic buffers are able to negate common effects of demand volatility, such as stock outs and conversely over-stock, which can be detrimental to customer service, profitability and the customer centric shift described above [11]. In emerging markets such as Africa, where supply chain volatility is far more prevalent than in established markets [4], organisations must take advantage of all methods of mitigating this volatility to successfully grow within the market. DDMRP offers an effective means of managing supply chain volatility in emerging markets, as can be seen in the success reported by ABE Construction Chemicals in South Africa. After implementation of DDMRP they have seen a significant reduction in stock outs and overstock situations and a corresponding increase in customer satisfaction [19]. Success stories for DDMRP implementations are increasing as this methodology grows in popularity [20]. These success stories highlight the benefits of improved flexibility and responsiveness to supply chain volatility offered by the DDMRP methodologies. In emerging markets, a barrier to the adoption of these methodologies is the affordability of software, the cost of training and the need for on hand support for addressing the unique challenges that face these markets. iSimPlan is the first Demand Driven Institute Compliant DDMRP software developed in Africa, with a specific focus on assisting organisations in emerging markets to overcome these barriers while delivering a world class product. Based in South Africa, iSimPlan developers and consultants have the distinct advantage of daily exposure to supply chain management in an emerging market, allowing them to provide services tailored to this market. iSimPlans’ customisable dashboards allow organisations to have an overview of the health of their strategic buffers, and so the organisations’ ability to respond to supply chain volatility. An added benefit to organisations based in Africa is that iSimPlan support and training staff are close at hand when needed. This is enhanced by the coaching and change management training that come as a prerequisite to any implementation. These features provide organisations with a competitive advantage that will allow them not only to grow, but to thrive in any market.

Is your organisation experiencing the negative effects of supply chain volatility?

Contact us to find out more about an iSimPlan Proof of Concept trial for your organisation. References

[1]        B. Render, ‘Managing Demand Variability and Volatility – Supply Chain Nation Blog’, 2012. [Online]. Available: https://blog.jda.com/managing-demand-variability-jda-software-supply-chain/. [Accessed: 04-Sep-2018].

[2]        B. Nitsche and C. F. Durach, ‘Much discussed, little conceptualized: supply chain volatility’, Int. J. Phys. Distrib. Logist. Manag., 2018.

[3]        M. Christopher and M. Holweg, ‘“Supply Chain 2.0”: Managing supply chains in the era of turbulence’, Int. J. Phys. Distrib. Logist. Manag., vol. 41, no. 1, pp. 63–82, Feb. 2011.

[4]        T. Nieuwoudt, ‘Supply Chain Challenges in Emerging Markets : Key Issues in Logistics & Supply Chain’, Strategic Marketing Africa, pp. 32–36, 2015.

[5]        W. Piotrowicz and R. Cuthbertson, Supply Chain Design and Management for Emerging Markets. 2015.

[6]        R. Miclo, F. Fontanili, M. Lauras, J. Lamothe, and B. Milian, ‘An empirical comparison of MRPII and Demand-Driven MRP’, IFAC-PapersOnLine, vol. 49, no. 12, pp. 1725–1730, 2016.

[7]        R. Gangadharan, ‘Supply Chain Strategies to Manage Volatile Demand’, Supply and Demand Chain, 2007.

[8]        J. Tompkins, ‘Why you need to switch to a customer centric supply chain to stay competitive – Trade Ready’, Trade Ready, 2015. [Online]. Available: http://www.tradeready.ca/2015/trade-takeaways/need-switch-customer-centric-supply-chain-stay-competitive/. [Accessed: 09-Sep-2018].

[9]        R. Howells, ‘Creating A Customer-Centric Supply Chain’, Digitalist Magazine, 2016.

[10]     Barloworld Logistics, ‘Embracing change for a sustainable future’, pp. 1–88, 2015.

[11]     L. Bam, Z. M. McLaren, E. Coetzee, and K. H. Von Leipzig, ‘Reducing stock-outs of essential tuberculosis medicines: A system dynamics modelling approach to supply chain management’, Health Policy Plan., vol. 32, no. 8, pp. 1127–1134, 2017.

[12]     B. Goshorn and C. Usswald, ‘Pharmaceutical supply chains in Africa – overcoming unique transport security challenges’, J. Transp. Secur., vol. 7, no. 4, pp. 333–337, 2014.

[13]     M. Christopher, Logistics and supply chain management, 4th ed. Pearson Education Limited, 2012.

[14]     S. Cannella, J. Ashayeri, P. A. Miranda, and M. Bruccoleri, ‘Current economic downturn and supply chain: The significance of demand and inventory smoothing’, Int. J. Comput. Integr. Manuf., vol. 27, no. 3, pp. 201–212, 2014.

[15]     M. Mitchell, M. Bourdé, K. Butner, and C. Hawker, ‘Transforming your supply chain to on demand: Competitive advantage or competitive necessity?’, p. 51, 2003.

[16]     J. Budd, C. Knizek, and B. Tevelson, ‘The Demand-Driven Supply Chain; Making It Work and Delivering Results’, 2012.

[17]     R. Miclo, M. Lauras, F. Fontanili, J. Lamothe, and S. A. Melnyk, ‘Demand Driven MRP: assessment of a new approach to materials management’,

Int. J. Prod. Res., vol. 7543, pp. 1–16, 2018.

[18]     C. Ptak and C. Smith, Demand Driven Materials Requirements Planning (DDMRP). Industrial Press, Inc., 2016.

[19]     Demand Driven Institute, ‘ABE Construction Chemicals’, Demand Driven Institute Case Studies, 2016. [Online]. Available: https://www.demanddriveninstitute.com/case-studies. [Accessed: 07-Sep-2018].

[20]     Demand Driven Institute, ‘Case Studies’.