Strengthening Supply Chain Resilience through Federated SCM ~An Operating Model that Achieves Both Regional Optimization and Emergency Response~

The emergence of pandemics and geopolitical risks has once again highlighted the fragility of global supply chains. The shift from “just-in-time” to “holding inventory in preparation for unforeseen events” is a rational decision in fulfilling supply responsibility. However, in a context of rising interest rates and escalating logistics costs, what should be closely examined is not the volume of inventory itself but the nature of its increase. According to the Ministry of Finance’s “Financial Statements Statistics of Corporations by Industry (2025),” even after sales recovery, inventory turnover days have not fully returned to pre-pandemic levels, making it necessary to carefully distinguish the background of persistently high inventory levels.

Source: Prepared by ABeam Consulting based on the Ministry of Finance “Financial Statements Statistics of Corporations by Industry” (2025)

Inventory increases should be broadly considered in two categories. One is strategic inventory intentionally accumulated in preparation for supply disruptions or demand fluctuations, which has a certain rationality as a management decision to ensure supply continuity. The other is unintended inventory increases resulting from misjudging demand, shortages of materials, or incompatibility between sites. The latter tends not to contribute to improving supply continuity even if inventory levels rise, and instead increases the burden on working capital.

In particular, in assembly manufacturing, even if the total volume of inventory appears sufficient, minor constraints in materials or discrepancies in process conditions can prevent work-in-progress or finished goods from moving. The fact that inventory turnover days remain elevated even during a sales recovery phase suggests that, in addition to necessary strategic inventory, such unintended inventory increases may be mixed in. Therefore, what management must distinguish is whether the inventory contributes to supply continuity as strategic inventory, or is an unintended increase caused by structural issues such as demand misjudgment or incompatibility between sites.

Another environmental change is the divergence of regional markets themselves. Product specifications, regulations, customer behavior, and competitive structures are evolving in different directions in each region. As the demand for local content strengthens, attempting to respond to region-specific regulatory environments and demand fluctuations under headquarters-led control inevitably slows decision-making. By the time changes occurring on the front lines of regions are discussed in headquarters meetings and approved before being returned to local sites, competitors have already taken action. In this way, as market divergence progresses, a headquarters-led decision-making model becomes structurally less capable of securing competitive advantage.

What is important here is not to view regional autonomy merely as a measure for cost minimization or profit maximization. The essence lies in realizing a state in which regions can make rapid decisions based on their own logic. Profit improvement and individual efficiency gains should be considered secondary effects that follow as a result.

Responding to external threats and pursuing internal optimization appear, at first glance, to be opposing challenges. One demands “structural dispersion” such as redundancy of sites and supply networks as preparation, while the other demands “operational decentralization” through delegating decision-making authority to regions. However, both ultimately encounter the same barrier: management functions distributed across sites and regions are not interconnected.

Even if sites are dispersed to address geopolitical risks, if protocols such as data structures and decision-making rules differ across sites, alternate production will not function during emergencies and resilience will not be ensured. Even if authority is delegated to achieve regional autonomy, without common rules and shared foundations among regions, it is impossible to consolidate procurement conditions or to spread know-how in supply-demand management and alternative responses developed in individual regions to others. In other words, both lead to the same structural issue: how to design interoperability after dispersion.

To realize Federated SCM, three interlinkages are required. Each corresponds to the three elements that constitute the operating model: what is provided to regions (resources), rules that define who makes decisions and how (authority), and the foundation that enables execution (data). As described in the previous section, the “provision of common resources” by headquarters is concretized through resource interlinkage, while “standardization of governance” is realized through interlinkages of authority and data.

These are conditions that support supply continuity in emergencies while promoting regional optimization, and rather than being built sequentially, they must be realized simultaneously.

The first interlinkage is to clarify the common management resources that headquarters should provide to regions and the strategic constraints in SCM that must be managed across the entire company.

For regions to make rapid decisions and compete in regional markets, they must have access to management resources that cannot be possessed independently and can only be aggregated under headquarters leadership. Typical examples include “common product architectures and technology modules” in development, “globally integrated purchasing and negotiation power” in procurement, and “best practices in supply-demand management from other regions” in operations. The primary role of headquarters is to provide such resources in a form that regions can utilize. Therefore, headquarters takes on the role of a “resource provider” that enhances regional competitiveness, rather than a controlling authority.

At the same time, headquarters must globally synchronize and manage strategic constraints in SCM that affect supply continuity and overall corporate profitability. Typical examples include production capacity constraints, key component constraints, and process or equipment constraints. What management should capture with high resolution is not all resources, but a focused set consisting of common management resources that enhance regional competitiveness and strategic constraints that determine success or failure.

These represent “resources” that enhance regional competitiveness in normal times and “constraints” that are critical to ensuring supply continuity across the company during emergencies, forming an integrated relationship of offense and defense in global management.

The second interlinkage is authority design that shifts the center of decision-making between normal times and emergencies.

In normal times, the highest priority is enabling regions to make rapid decisions based on their own logic. Areas such as product specification adjustments, service level optimization, and pricing strategies should be delegated to regions. Excessive involvement of headquarters in day-to-day decision-making hinders regional autonomy.

However, supply allocation rules and criteria for alternative production are different. If these are not standardized in advance, they will not function during emergencies. When demand exceeds supply constraints, who decides what, based on which criteria, and in what order? Allocation rules incorporating factors such as profit impact, contractual obligations, and substitutability must be shared as a common language in normal times. For example, implementing fair share based on fulfillment rates against inventory targets during supply shortages, or predefining priority order of allocation by headquarters, are examples.

The key point in authority design is to explicitly define, as a management decision, the boundary between what is delegated and what is retained. If the boundary remains ambiguous, headquarters intervention in normal times will erode regional agility, while regional discretion in emergencies will hinder company-wide optimization. Two conflicting risks will arise simultaneously within the same operating model.

The third interlinkage is data connectivity that supports regional decision-making while enabling alternative decisions in emergencies.

For regions to respond quickly to market changes, they must be able to grasp demand, inventory, supply capacity, and constraints within the region in real time. At the same time, to determine alternative production from other regions during emergencies, it is necessary to compare capacities and constraints across regions. Supporting both is a data foundation that connects planning and operations, as well as regions with one another.

To achieve this, it is necessary to connect planning systems with execution systems and on-site data such as process design information, filling the invisible constraints between planning and the field with data. The feasibility of changing supply plans cannot be determined by comparing capacity volumes alone. Only with constraint data from the manufacturing floor—such as component constraints, process sequences, and changeover losses—can regional decisions in normal times become precise and alternative decisions in emergencies become possible. This does not simply mean physically connecting systems. It is essential to eliminate discrepancies in data structures across sites described earlier and to apply a minimum common data model in normal times.

However, connecting data itself is not the objective. What is important is how to utilize connected information in decision-making. What is required is not mere visualization, but a mechanism that rapidly iterates replanning incorporating constraints and returns actionable measures to regions and headquarters. Without data interlinkage, both resource interlinkage and authority interlinkage remain theoretical consistency on paper.

Note that these three interlinkages must be realized simultaneously rather than sequentially. If any of the provided resources, decision-making rules, or execution foundations are missing, the operating model will not function.