Resiliency in Supply Chain: Beyond the Buzzword
On October 31, 2023
Resiliency in the supply chain has been a topic of heavy discussion, gaining popularity as a buzzword since 2020. However, it’s crucial to evaluate whether substantial changes have truly transpired or if it remains a theoretical concept.
Within the supply chain, we often tend to gravitate towards buzzword concepts, such as cloud native, digital twin, AI, ML, and digital transformation. But we should exercise caution to avoid treating resiliency in the same manner, merely adopting it as a popular term without concrete action.
Change in the Supply Chain Takes Time
Also, because resiliency is relatively new to the supply chain space, we shouldn’t anticipate sweeping transformations within a short timeframe. Meaningful change requires time and patience. Don’t belittle the concept, dismissing it solely because we haven’t completely overturned established practices in a few short years.
Rather than expecting drastic shifts, we’ve observed some reactive adjustments from our own customers as well as other companies. They have explored avenues like dual-sourcing, redundancy creation, and enhanced visibility. Although visibility has long been a focal point, its integration with the notion of resilience holds great potential.
How to View Resiliency in the Supply Chain
When considering resiliency in the supply chain, we can approach it through three key aspects:
Persistence relates to the ability to replicate today’s actions tomorrow, highlighting the significance of redundancy. During these challenging times, it’s crucial to maintain a strategic approach for long-term success. We must not merely rely on cliche phrases like “redundancy is resiliency,” but rather, consider fostering a proactive mindset centered around adaptability, transformation, and forward-thinking concepts. These elements are key to driving growth and staying ahead of the curve.
Numerous factors have contributed to the need for change. We’ve witnessed a confluence of global events such as the pandemic, Suez Canal blockage, labor shortages, and more. Like 5-year-olds in a game of soccer, everyone had to run towards the ball together and figure out some solutions. This altered the trajectory of our discussions and posed new questions.
Will these changes endure? We’re hopeful that they will. Many positive transformations have occurred, including a shift in inventory management strategies and the acceptance of safety stock as a necessary measure.
However, as the dust settles and challenges evolve, we may see a regression towards previous practices. It will be intriguing to observe which companies truly adopt and operationalize long-term strategies, as opposed to those who revert to short-term fixes for temporary relief.
Much remains uncertain. How will companies embrace the strategies they have implemented? Will the C-suite be resolute in safeguarding against future disruptions, or will they succumb to cost-driven temptations? Has the significance of certain policies eroded, leading to a return to familiar sourcing methods? The changes that transpired were inevitable, and it will be interesting to watch which ones last.
As an industry, we must acknowledge the actions we have taken to persevere during these circumstances. However, it is paramount that we remain steadfast in our commitment to continuous adaptation and transformation, regardless of our current situation.
Boardrooms have recognized the need for flexibility and adaptability as key factors for survival, thanks to the recent pandemic. Supply chain challenges were thrust into the spotlight, forcing organizations to address them head-on.
The Long-term Outlook for Resilience in the Supply Chain
However, the long-term outlook remains uncertain. If no major disruptions occur in the next three to five years, companies may be tempted to prioritize margin recovery over strategic changes. They may abandon the practices that were put in place for immediate impact, neglecting the importance of being prepared for future events.
Only time will reveal the course of action. Flexibility will undoubtedly be a crucial driver and topic of discussion in the supply chain industry. The extent to which companies embrace it and blend margin impact with risk mitigation strategies will determine their resilience in the face of future challenges.
But let’s not forget our natural tendency to gravitate towards familiarity and complacency. If we’re not cautious, we may fall back into the trap of doing things the same old way after surviving a crisis.
As a society and within organizations, we must resist the urge to assume that supply chains function effortlessly and without careful management. Let’s seize the opportunity presented by recent events and commit to ongoing improvement and adaptation.
How an Optimized Supply Chain is a Competitive Advantage
A well-run supply chain can be a significant differentiator in today’s competitive business landscape. While some organizations may regard it as a simple process of putting products in boxes and shipping them, the reality is far more complex and cross-functional.
Sales, sourcing, financing, IT, operations, and manufacturing… these are just a few of the areas that contribute to a successful supply chain. Implementing meaningful and sustained change in this complex ecosystem requires the involvement of the C-suite, led by the CEO, to drive transformation and align the organization’s outlooks, success metrics, and KPIs.
McKinsey reports that, on average, approximately 40% of one year’s profits can be lost due to supply chain disruptions every decade. It’s crucial to note that such disruptions don’t occur predictably each year – there’s no consistent 4% annual loss. Instead, the timing and impact are unpredictable.
Investing in an optimized and resilient supply chain is imperative for organizations aiming to stay ahead, deliver superior products to customers, and avoid potential financial setbacks. By recognizing the value of supply chain management and effectively communicating this to the board, leaders can secure support for long-term investments that drive sustainable growth.
When organizations plan for innovations, investments, and supply chain strategies, taking a long-term perspective becomes crucial. Anticipating potential disruptions over a three, five, or even a seven-year span is necessary for determining the viability of these investments. Without such foresight, meaningful long-term changes cannot be justified, leading to stagnation.
Building resilience requires adopting a comprehensive view, acknowledging that unforeseen events, whether a pandemic or something else, are bound to occur. Investments must be made now, despite the uncertainty of what lies ahead. In such situations, investing in flexibility provides the necessary adaptability to navigate unforeseen challenges as they arise, allowing for timely adjustments and shifts.
Investing in Programmatic Change and Leveraging Technology
To achieve resiliency and success, it is imperative for organizations to embrace programmatic change and leverage technology and data. How do you make sense of the endless data you collect? How do you analyze and learn from it to improve your strategies? The truth is, we are still evolving in this realm. While we lack the perfect tools for prescriptive analysis, the key lies in marrying human expertise with machine capabilities. By effectively blending our insights with available data, we can gain valuable foresight and enhance our scenario planning. Let’s explore the fascinating intersection of technology, data, and resilience.
Leveraging Supply Chain Visibility to Drive Change
The McKinsey study conducted surveys during the early stages of the pandemic and in 2021, focusing on visibility. Specifically, the study highlighted the importance of knowing the precise location of products in warehouses and containers.
As the pandemic progressed, there was a growing realization that enhanced visibility alone was not enough. The key was to plan effectively and be able to quickly adapt and pivot based on changing circumstances. This is where scenario planning comes into play. By leveraging available data, organizations can model different scenarios and determine the potential outcomes of their decisions. The challenge lies in operationalizing these insights to drive impactful changes within the organization.
It’s important to recognize that future challenges may not be another pandemic. They could be geopolitical in nature or something totally unexpected. The key is to be prepared and have a plan based on previous experiences and scenario planning. By analyzing data and running simulations, organizations can develop a clear understanding of how to pivot and navigate uncertain situations.
It’s crucial to harness the power of data and utilize scenario planning to stay adaptable and ready for any future challenges that may arise.
Data and the insights contained within it are often cited as the key to achieving readiness and resiliency in our industry. While they are crucial, they alone are not sufficient. We must acknowledge their importance while also recognizing the need to respond to the insights they provide. Looking at the data without action is like staring in the mirror without making any adjustments to our appearance.
In our pursuit of progress, we often gravitate towards seeking new additions rather than revisiting the foundations.
Take, for instance, the execution systems and warehouse management software that power our operations. These systems are typically upgraded every five to seven years, sometimes even longer. Despite having valuable visibility and a wealth of data-driven insights, without the necessary processes and adaptable technology to act on these insights, we cannot fully attain resiliency.
We need to dig deep and identify our shortcomings, while also evaluating the core technologies that enable us to adapt to the insights we gain from these new developments. It’s natural to yearn for the next big thing, believing it will fill the gaps in our capabilities. However, it is equally important to challenge ourselves and revisit the foundations upon which our success is built.
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