Building Resilience: The New Must for Supply Chain Leaders
What has made supply chain resilience so attractive to the C-suite lately? Is it the significance of supply chain management in business continuity? Or is it the unpredictability of supply chains? Or both?
In the words of Richard Wilding, Professor of Supply Chain and Strategy at the UK’s Cranfield University and a thought leader on the subject, supply chain issues are metamorphosing from “an occasional black swan event” to “a whole flock of black swans”.
Supply chain disruption is not new. It gained notoriety during the coronavirus pandemic, as lockdowns triggered tectonic shifts in demand, and created labor shortages and structural issues. Subsequent events – a second wave of Omicron, local virus outbreak in Shanghai, the Russia-Ukraine war, growing US-China trade spat – and fragile geopolitical equations have only compounded the problem.
As companies scramble for a solution, the focus on supply chain resiliency has increased multifold. For long-term sustainability in business, organizations need to have strong visibility on the supply chain bottlenecks. As per a 2021 survey by Gartner, cited in an IBM Supply Chain Blog, over 85% of supply chain leaders planned to invest in building resiliency over the next two years.
Given the complex nature of supply chain functions and the deep interconnectivity of business operations worldwide, finding a fool-proof solution is akin to juggling frogs. The key is to make the system resilient by identifying the levers to pull and the potential bottlenecks..
What is supply chain resilience and why is it important?
Supply chain resilience is the capacity of the supply chain to resist disruption, or if disrupted, recover from the turmoil. This implies lower impact on revenues, costs and customers/consumers. Supply chain resilience helps a business to be agile and adapt to changes (in the market, economy or technology) and gain competitive advantage. It helps in:
- Increasing process efficiency: A sturdy supply chain frees up capital for investment in growth-centricor innovation-based initiatives. A global business analysis survey by Bain in 2020 showed that prioritizing supply chain resilience speeded up product development by 40-60% and increased output capacity by 15-25%.
- Boosting productivity: According to a study by McKinsey in 2020, covering supply chain leaders the world over, resilient supply chains led to an increase in productivity.
- Mitigating risks: This is relevant for businesses with typically complex, global and risk-prone supply chains. Getting real-time visibility on operations along the network helps in identifying potential risks and optimizing functions and logistics.
Simple as this may sound, building resilience is anything but easy.
The profile of a supply chain leader has changed drastically. Juggling tactically between costs, equipment and storage is no longer enough.
Supply chain leaders need to bring strategic thinking to their roles. The new skill set must transcend previously required knowledge and experience to include a technology-enabled data-driven approach, incisive decision-making, and relationship-building with suppliers and other key stakeholders.
What must a supply chain leader focus on in building resilience?
There are three must-haves for a supply chain leader, as cited in a 2021 report by the World Economic Forum. The individual must focus on:
- Preparedness. Nearly 60% of the executives surveyed said that the pandemic had highlighted the need to be better prepared. This prompted leaders to work toward building resilience over the long term for coping with future disruptions.
- Adopting“just-in-case” approach over “just-in-time”. Over 85% of executives in the study pointed out that risk resilience was as important as other factors such as cost or value in taking decisions pertaining to network optimization. In fact, in the coming decade, supply chain management will probably be more centered on risk-mitigation vis-à-vis cost-optimization.
- Embracing unpredictability for better predictability. Leaders in the survey believed that the only way to deal with the uncertainty was to undertake scenario planning, strategy development; plan for unforeseeable emergencies; and adopt flexibility.
How can a leader build supply chain resilience?
By looking and thinking beyond the supply chain.
What resilience building typically involves is a change in the mindset and taking a fresh perspective. It implies finding that right balance between efficiency and resiliency, such that neither is sacrificed for the sake of the other.
A pulse survey by McKinsey in the Spring of 2022 lists three parameters for resilience building: supply chain visibility, effective scenario planning and accurate data capture for incisive decision-making. This will help leaders to build both optimal and structural resistance.
The premise is that short-term tactical measures (that are required to handle day-to-day issues) need to be buttressed with long-term reforms or initiatives that usually kick in during the second stage of the crisis.
- Re-evaluate sourcing strategy
Diversifying sourcing strategies to build a wider base of suppliers for goods and services provides a sound base. A leader should focus on having suppliers from different geographies. This will help in reducing exposure to or dependence on a few suppliers.
Communicate with your suppliers. Keep them posted about your disruption prevention plans. This will enable them to support you better when the disruption strikes.
- Leverage technology for digitalization and automation
Digitalization and automation of essential processes will provide clear visibility and facilitate smooth connectivity with suppliers.
Employing sophisticated technologies, such as simulation techniques, N-tier mapping, or AR/VR, is critical for predictive analytics and maintenance. You can use these to construct a virtual replica of operations, assess likely scenarios and the impact of external events. This will help you in identifying deeper threats in an interdependent supply chain, understand and prioritize your vulnerabilities, and gain insights.
For instance, in the manufacturing sector, to ensure uninterrupted supply, procurement teams need to have precise knowledge about several aspects: sourcing location of parts, the share of the parts in revenue generation, and latest developments that could affect the supply chain, such as M&A, lockdowns, man-made or natural disasters, etc. Employing AI-based disruption monitoring and tracking will help in addressing continuity-related challenges. Some companies that have invested in this area are IBM, Micron, and GM.
Also, leveraging AI and analytics, you can unlock opportunities.
- Make data-centric decisions for better planning
Data mastering is the key to tackle uncertainty and unpredictability. Collating and integrating massive quantities of data from across divisions and departments will make it readily accessible to the different teams associated with supply chain management. They can use it to understand trends and patterns, do analysis, and make informed decisions. This will help you detect the pain points and prepare contingency plans.
Connecting the dots with the help of data, you can make incisive decisions and draw actionable insights to improve processes and meet the expectations of the stakeholders.
- Prioritize your customers
As a supply chain leader, focus on providing full visibility to customers, from stock or inventory to last-mile logistics. This will help you win their trust and goodwill, besides meeting their expectations.
This is especially relevant for B2B companies. As per a survey by Morning Consult, conducted on behalf of IBM, nearly two-thirds of consumers said they expect immediate availability of delivery and inventory options while shopping online. Over 70% of B2B buyers said they preferred digital purchases. This means B2B companies are under significant pressure to offer quality digital experience.
Managing customer expectations also includes communicating with them. While the preference for immediate delivery is strong, customers value prompt communication about the inventory and status of online orders.
- Createaframeworkof policies and practices
Having a supply chain resilience strategy in place is not enough. You need to supplement it at the policy and practice levels.
In collaboration with the senior leadership and management, build a framework of guidelines to ensure implementation is effective.
Make sure employees are aware of the company’s protocols for uninterrupted operations during crisis situations.
You could build dedicated teams to address short- and long-term issues. Having two separate teams is advisable for accountability and ownership.
The other aspect is to integrate resilience-building in functions.
Work on resilience-building constantly. Make it multi-faceted to factor in the needs of your organization, industry, and customers.
This is important because your business is growing, as is the macroeconomic environment, while customer expectations are changing rapidly.
- Hire the right professionals at senior/leadership positions
Manning supply chain processes with the right resources is essential to building resilience. Only a suitable fit with the required leadership prowess and knowledge of the domain can maneuver the strategy towards the desired goals.
Given the demand for hiring, you may need to relinquish your conventional hiring strategy and make it more skills-based. Notably, at the annual LinkedIn conference in October of this year, skills-based recruiting and succession was at the center of the conversation.
Coordinate with your HR leadership to convey your expectations and forecasted needs. Ask for a revised Talent Strategy that addresses these.
If posting on job portals is not yielding the desired results, you could expand your strategy through the following steps:
- Connect with supply chain associations
- Design employee referral programs
- Tap into your internal database to source and develop candidates
- Post jobs on trending or niche portals, including social media
- Hire a search firm
Of these, the last one is the most viable option when your efforts to source have met a dead end. You may choose to go for a boutique executive search firm that either specializes in your area of interest, or has broader domain knowledge and expertise across industries to provide you with end-to-end support across the supply chain discipline. Such firms employ sophisticated technologies, best-in-class techniques, and proprietary assessment tools & techniques to filter in the most qualified candidates.
While hiring is one half of the problem, retaining talent is the other half. This means you need to include incisive performance measurement metrics and methodologies in operating models or review meetings. As a leader, you should also revisit the incentive program and make it initiative-specific instead of hovering around cost-based targets.
For instance, for procurement teams, the KPIs could be measured based on parameters such as reduction in process time, gains in compliance, rise in productivity, etc. Likewise, bonuses could be linked to ensuring uninterrupted supply, instead of solely focusing on cost-savings.
Adding new metrics will make performance measurement and reward systems relevant. This will improve decision-making at the managerial level and improve performance.
- Enrich your knowledge
Read. Study. Observe. These are the key traits of leaders looking to transform themselves alongside their organization, if not be the change agent.
Study/understand your partner ecosystem. Gain insight into how their business operates and what their disruptors are.
Leverage technologies, such as blockchain, to identify suppliers, and simplify onboarding and management. Convenience counts big in determining overall experience.
Study your competitors. Understand their strategies. A competitor study could reveal significant insights on how to build supply chain resilience.
- Focus on succession planning
Succession planning is highly effective for risk-aversion. Supply chain and strategic sourcing leadership cannot be overlooked. Unlike the fuel in the car which is visible every day, they are often the battery in the car. They need to be part of the dashboard. Their roles and their teams’ roles cannot be left vacant. To ensure that they are filled by people with the right qualifications and expertise, having a formal succession planning process is a must.
Being prepared for the exit of key employees that play a fundamental role in business, such as leaders or managers, is imperative to ensure minimal interruption to processes. It is especially relevant in industries where one or two managers run the entire show, such as handling important business relationships.
You need to have a well-defined structure for a smooth transition.
As a first step, be attentive to cues. Some exits are planned and announced; some are unannounced and sudden. Having a succession plan and upskilling in place will enable you to address each situation.
Identify critical positions and roles in the supply chain and procurement organization. Profile these, listing the attributes, skills and qualifications required. Identify employees in the organization who demonstrate these core traits. You could also nominate your own successors.
The next step after identifying is to do a gap analysis to understand the areas of development. Just as in identifying and mitigating risk in the supply chain, you must do this too for the People Supply Chain. This should then be followed by a detailed plan for the development of potential successors. It could include coaching and mentoring either through L&D-based training or by employing sophisticated tools and techniques, including AR and VR-based immersive simulation; transitioning of some responsibilities prior to the senior’s exit to ease the new employee into the process; thorough documentation of the leader/manager’s role and responsibilities, including details about tenure, retirement, and the process for executing tasks for easy reference; regular audits to assess the skill requirements, skill gaps, change in priorities, risks, etc.
For every step, ensure timeline and targets are addressed to avoid any spill over.
As a leader, you need to take succession planning seriously. Besides providing visibility, it facilitates mentoring and passing on of knowledge, both of which strengthen operations. It is effective in conveying to your employees that you value them. It also sends a message to the stakeholders in your organization that you are committed to furthering growth and the company’s vision.
Turning a challenge on its head opens up new trends.
Let’s hear from the stalwarts
As supply chain disruptions continue, it is interesting to see companies vying to convert the crisis into an opportunity. In the Davos Agenda 2022 by the World Economic Forum, experts shared their views on how the space is developing.
According to Yasmina Zaidman, Chief Partnerships Officer at Acumen, corporate supply chain management has thrown open a plethora of opportunities to integrate sustainability and inclusion into their business models. ‘Buying social’ has emerged as a new trend for inclusive procurement.
Tarek Sultan, Vice Chairman, Agility, says the relationship between buyers and suppliers has changed—forever. The C-suite finally acknowledges the supply chain as a critical factor in driving growth. With business continuity emerging as a top priority, companies are taking bold steps that transcend conventional business operations. The chip shortage, for example, drove Ford and GM to form strategic partnerships with chip manufacturers. Likewise, retailers are buying storage space, while shippers are building their own containers.
Once this phase is over, we are in for an intelligent supply chain.
Alyssa Auberger, Chief Sustainability Officer, Baker McKenzie, says this is the right time for the industry, government and regulators to work in cohesion. Collaborative approach is the need of the hour.
Kathryn Wengel, Executive Vice President and Chief Global Supply Chain Officer, Johnson & Johnson, opines the key is to build real-time resilience by adopting a digital approach.
Roland Busch, President and CEO, Siemens AG, stresses on the role of Industry 4.0 Technologies in enabling companies to rethink their manufacturing and supply chains.
Supply chain resilience is among the top priorities for organizations today. Given the uncertain times we are in, building a resilient supply chain is crucial not just from the perspective of managing risks, but also from the perspective of doing it better than our competitors.
Supply chains differ from industry to industry, with a unique set of twists and turns. What could work for one company may not work for another organization. Each therefore has to figure out their own path in combating supply shortages and bottlenecks. So, even if it is switching from just-in-time to just-in-case,you will need to decide how to go about it based on your requirements.
While the approach we may choose can differ, there are endless possibilities about how supply chain management and resilience may take shape in the future. Looking through this glass, building supply chain resilience provides an opportunity to question conventional methods, to invest in resources, and to grow.
Necessity, or strategic wisdom, building supply chain resilience is a must. The days of status quo are over, unless you want to relive that ‘blast from the past.’