COVID-19 upended supply chains globally. Executives were left scrambling, and revenues and profits plummeted. Companies had to ask themselves: how could we have better predicted this super-event? But that is the wrong question to ask. Predicting once-in-a-lifetime events is an absurd undertaking. Instead, what companies and C-suite executives should be working towards is identifying supply chain risks and building supply chain recovery and resilience to combat and succeed against both repeating and new shocks in the best possible way.
Identifying Major Supply Chain Risks and Investing for Supply Chain Recovery
From working and speaking with hundreds of companies that in aggregate manufacture and distribute tens of billions of dollars in spend, below are top supply chain risks that are in our control to manage. And correspondingly, suggestions (please visit suuchi.com to find out more) for recovery. Every supply chain is different, but I picked the top risks that impact revenue and profit.
- Network complexity
Companies often take simplistic, dangerous views to scoping supply chains. In most cases, supply chains are custom defined by the company and typically start where finished products are purchased from tier 1 suppliers. A value chain is a more panoramic view and includes raw materials’ sources and tier 2, tier 3, and sometimes tier 4 suppliers. Should any of these points fail, the companies’ supply chains suffer.
Simplifying product suites is the best recovery solution. Companies should not wait for a calamity to cut the least profitable products. It would serve supply chain executives to cut products with long, complex materials and supplier lists and long lead times – both of which reduce profitability and hasten destruction when shocks occur.
2. Supplier and Geography over-dependence
More than 50% of products made in one country or made by one supplier is destructive over-dependence. Do not forget tier 2 and tier 3 suppliers. You may have four tier 1 suppliers for a top product giving a false sense of diversification security. But if all your tier 1s source from the same tier 2 supplier, the company’s supply chain is still dead in a shock wave.
Simplifying product suites but multi-sourcing a rationalized product set from multiple suppliers across multiple countries is a far more robust strategy for recovery.
3. Transparency and Digitization
Black holes and unknowns in communication and data across the value chain are the risks with the highest negative impact. You cannot plan and recover from unknowns. For decades we have cobbled together workflows without a seat at the table for upstream suppliers and downstream participants. This lack of transparency exacerbates losses during calamitous events.
Recovery lies in digitization. All suppliers, agents, and team members must have a digital identity. The most significant agent for recovery is investing in digitizing supply chains and empowering supply chain participants to collaborate in real-time using their digital voices.
While COVID-19 destroyed many companies’ supply chains and P&Ls, some companies, especially those with primarily e-comm channels, enjoyed significant tailwinds. When things are going well is often when your company’s foundation may be cracking with tectonic shifts that you might not yet feel.
The supply chain is no longer the problem of the chief supply chain officer. This topic needs direct CEO involvement on an ongoing basis and involvement from all C-level executives. Quantifying and enacting recovery across points (1) through (3) should be tied to the yearly bonus plan for all executives across the company, not just those in the supply chain department.
What does a resilient supply chain look like?
How do you know as an executive if your recovery efforts show results and that you are building resilience? If you answer yes to the below, especially in the face of macroeconomic and other disasters, you have built a winning and resilient supply chain –
- You can continue to guarantee consistently competitive pricing and high levels of service to your customer.
- Your speed to market is unimpacted. You can multi-source across your simple product suite from your onshore and diversified offshore vendors.
- All your suppliers, employees, agents, and downstream participants have a seat at the digital table.
- You have implemented a successful digital identity, data, and analytics strategy. You plan demand, not as one equation, but customized to different customer segments and geographic segments because you recognize that customized analytics is a successful supply chain.
- Following from (4), you have high virtual workplace adaptability. You can deliver and distribute near 100% of your products, whether your supply chain is onsite or remote.
Good luck, and I wish you resilience!