Our industry must use the pandemic as a wake-up call to prepare for far more resilient operations in future.
Since the COVID-19 outbreak, supply chain leaders have been patching together responses to the pandemic. They’ve been redesigning logistics on the fly, pushing production capacity, adjusting inventory models, and seeking alternate suppliers.
Trouble is, none of that is enough. Our industry must use the pandemic as a wake-up call to prepare for far more resilient operations in future.
Exogenous shocks are no longer once-in-a-generation events. Major disruptions are occurring every two or three years – and their impact is increasing. Meanwhile, smaller, local disruptions—particularly climate-related wildfires and floods—are becoming more frequent.
Stable supply chain operations are a fiction at best. Nearly 52% of organizations experienced supply chain disruption in 2019, with 10% reporting five or more events in the year. The previous year, global supply chain risk events increased by 36%.
The risks are deep inside the supply chain. Nearly 25% of disruptions in 2019 came from Tier 2 suppliers and more than 12% from Tier 3. Yet many organizations still lack the means to manage those suppliers.
Those factors by themselves might be manageable if it were not for the rising financial cost of disruptions. More than 5% of organizations reported a major supply chain incident last year that caused losses exceeding $112 million.
The upshot: supply chain leaders absolutely must prepare their operations for episodic – and epic – upsets.
Yet there’s a real danger of just drifting back to the old ways of working. I’ve seen it in the U.S. auto industry, where responses to the 9/11 attacks had effectively been unlearned by the time the Japanese tsunami hit 10 years later. The industry had quickly defaulted to old-school techniques such as just-in-time manufacturing and sole sourcing—and paid dearly for it.
I see two keys to the changes needed now. The first is technology. Now, halfway through 2020, there is no excuse for not taking advantage of the array of tools and techniques available to streamline and routinize supply chain operations. That does not mean teetering on the bleeding edge of tech; it simply means leaving Excel spreadsheets far behind and harnessing some of the digital tools that by now are well proven. Many tools can be implemented inside a fiscal quarter—and will rapidly yield results.
The second key is cultural. Today, everyone in supply chain must be a risk manager. But a risk-mitigation culture can only become embedded when the organization is led by someone who not only has budget authority but has also experienced a major disruption within the last 3-5 years and been responsible for navigating out of it.
Building a supply-chain operation that’s resilient enough to withstand repeated shocks is not easy, but it can be done. In future blogs, I’ll talk about research that underscores the importance of designing for success – starting with a performance-led vision.