Future-Proofing the Supply Chain
The perfect storm that is currently putting global supply chains under severe stress is unlikely to subside in the near term, but the problems faced by businesses may have a positive impact further down the line. Now is the time for companies to be bold and future-proof their supply chains by addressing issues around agility, sustainability and resilience.
We have all had a wake-up call. In the pre-pandemic era, business leaders could look at their globalised supply chains and take comfort in the fact that, despite inevitable problems, they were for the most part delivering quality materials, components, foodstuffs and finished goods both cost-effectively and on time. Supermarket shelves were full, factories hummed with activity and consumers shopped for an abundance of competitively-priced products.
But things have changed and while it would probably go too far to describe the global supply chain system as completely broken it is certainly under a great deal of stress. We all know the factors that have fed into the current problems. A Zero covid policy in China has led to ongoing lockdowns and consequent interruptions in production. The war in Ukraine has disrupted oil, gas and commodity exports from Russia while also affecting the transport of goods through the region. Labour shortages have reduced flows through ports while also affecting rail, road and air transport. And meanwhile, a reduction in storage capacity – a byproduct of the just-in-time philosophy – has meant that the impact of supply chain problems is felt more quickly.
None of this is good. The supply chain problems have resulted in shortages while also contributing to inflation and a downturn in economic activity. But there is also a positive side to the story. There have always been risks associated with globalised supply chains. Put simply, events such as wars, natural disasters, regulatory changes, and political instability have, in the past, caused problems. Today’s perfect storm of events is simply a reminder that organisations can and should do more to ensure their supply lines are resilient and stable. Equally important,
businesses must be agile enough to cope with problems as they arise.
So, the current crisis provides an opportunity for organisations to rethink their supply chain strategy. In particular, Chief Supply Chain Officers should be seizing the chance to future-proof their operations.
The Need for New Priorities
But what does that mean in practice? Well business leaders have tended to prioritise three objectives – namely cost, quality and service – when building their supply chains.
Up until now, those priorities have served businesses and their customers remarkably well. Of course, we’ve seen disruptions in supply but they have been either relatively short-lived or have affected a small subset of businesses.
As things stand today, however, supply chain problems are affecting a broad swathe of industries in just about every corner of the world. What’s more, no one can say for certain when the war in Ukraine will end (and if sanctions will also be reduced) and whether factors such as Covid-related labour shortages can be addressed quickly.
So it is vital that businesses embrace new priorities – in particular, resilience, sustainability and also agility.
Building Resilience
It’s important that businesses assess every aspect of their operation, first identifying the risks and then taking steps to mitigate the impact of problems if and when they arise.
That’s the theory. But, as things stand, most organisations lack the tools and data to make a full assessment of risks, both in the here-and-now and on an ongoing basis. That’s particularly true when it comes to understanding suppliers. McKinsey’s research suggests that only half of CEOs understand the risks associated with Tier 1 suppliers. There is much less knowledge when you get down to tiers 2 and 3.
So how can this be addressed? Well, technology is certainly helping. RFID tags on goods in transit, sensors on pipelines and AI-driven smart alerting tools are among the solutions being deployed to help managers understand their supply chain vulnerabilities. Equally important, companies must demand and expect accountability for suppliers to give them a view of the whole chain.
Crucially, once the risks are understood, businesses can design strategies to build-in resilience.
Collecting The Data
A deep understanding of every point of the supply chain also plays an important part in enabling sustainability policies. Put simply, in areas such as labour policies, environmental record and inclusivity, it’s vital to look at your own business and the practices of suppliers and logistics operators. The key is to introduce ESG metrics across the whole operation. Again, supplier accountability is required.
Agility
The third important pillar is agility. The creation of an agile supply chain enables an organisation to act quickly to address problems. That might mean switching rapidly between suppliers if required, flexible labour strategies or a restructuring of the business model. During the pandemic, many businesses met public demand by moving consumer sales from retail stores to online.
But an agile model also helps businesses keep up with shifting patterns of demand. For instance, what happens if a video by an influencer creates unprecedented demand for a product? The surge in demand will only last for a limited period, so the product has to be moved quickly along the supply chain. As a recent Verizon article pointed out, one way to achieve this is greater automation. For instance, Internet of Things technology can be deployed within warehouses to speed up dispatch.
Addressing the priorities of agility, sustainability and resilience will require the creation of responsive supply, data-driven supply chains. For most companies, investment will be required but the reward for bold innovation is a competitive advantage.
