02/09/2020 | Nicolas Gallée and Florent Boizard
In today’s globalized world, supply chains are increasingly vulnerable to disruptions. Building resilience to outside shocks requires businesses to gain clarity of vision all along the supply chain—from end to end—and to cultivate relationships of deep trust with their partners.
Controlling every link in the chain
The pandemic that swept the globe in spring 2020 served as a real-life stress test for supply chains everywhere, highlights strengths in some and laying bare weaknesses and shortcoming in others. Now that the initial shock has passed, it is time to take stock. And while success or failure cannot be distilled down to a handful of factors, one thing is apparent: clarity of vision seems to be a strong predictor of success.
All the evidence suggests that those businesses that managed to weather the storm and continue operating, even at reduced capacity, have something in common: they already had a clear vision of (and control over) every link their supply chain—from supply and production through to distribution and sales. And by quickly setting up a crisis unit to manage their entire ecosystem—upstream and downstream—those same businesses were able to make nimble, common-sense business decisions.
Ultimately, businesses need to understand, control and coordinate their entire chain, from suppliers of all sizes (right down to the smallest components and raw materials) to upstream sales, distribution and end-consumer delivery flows. Organizations that have this clarity of vision are more agile and responsive—and able to make the right calls when disaster strikes.
Sharing data, building trust
The Covid-19 crisis has also raised questions, even among the general public, about stock management and single-source procurement. And although the answer may seem obvious—increase stock levels all along the chain and source from multiple suppliers—it is, in fact, far too simplistic. Overstocking, which creates a mismatch between supply and demand, is an expensive business. Likewise, sourcing from more than one supplier is not always an option. Manufacturers of electronic devices, for instance, have little option but to source essential rare-earth elements from China, which accounts for around 80% of global mining output and 90% of refining capacity.
Looking again at the evidence, it becomes clear that the vast majority of retailers that had to close in lockdown lacked the foresight to quickly restructure their e-commerce operations. Most continued shipping online orders from warehouses, leaving stock languishing in stores. In reality, they would have been better served preparing orders in their outlets and switching to click & collect or home delivery models. Here too, setting up fallback arrangements such as these takes organization, processes and tools—and a good dose of agility.
Manufacturers looking to optimize production and stock need indicators to help them make the right decisions. Two-way data sharing in the supply chain should be a matter of routine. Better still, businesses should invest in virtual machine monitor (VMM) systems capable of aggregating data from every part of their ecosystem. Of course, the success of this approach hinges on whether everyone in the supply chain is willing to share data in this way—not least in cases where some of the parties involved are competitors.
Yet having the right tools and technology is not a silver bullet. If the recent supply issues have taught us anything, it is this: in the supply chain, solid working relationships are what really count. One way to nurture these kinds of relationships is through a process of give and take: a company agrees to spend a certain amount with a supplier and, in return, the supplier promises to ring-fence resources—raw materials, semi-finished products, transport capacity, or something else. Here, the benefits for the business are two-fold: it knows it can trust its partners, and it circumvents the risks that come with single-source procurement.
A people-first approach to supply chain agility
A data-sharing strategy, coupled with effective tools and systems (business intelligence, machine learning, and more), gives businesses greater control over their supply chain, which in turn improves performance and provides all-important peace of mind—at least in normal times. But when the unexpected happens, the statistical models that underpin most of these systems are stretched to their limits. Why? Because no two crises are alike. Every financial and geopolitical crisis, every pandemic, and every sudden shift in market conditions has different origins and different consequences—which makes models imperfect crisis management tools.
Supply chain resilience depends first and foremost on quick-thinking and agility. This is where crisis units have a major part to play: meeting daily, reviewing data as it comes in, making informed decisions and sharing those decisions quickly, all along the chain. In short, the human capacity for agile, intelligent, common-sense thinking means that, when a crisis hits, people outperform even the most advanced machines.
The Covid-19 crisis has proven what we already knew: that businesses with the foresight to shorten their decision-making and communication chains tend to fare best. But that requires clarity of vision and end-to-end control of the supply chain in normal times.