September 27, 2022 Supply Chain Solutions to Mitigate Disruption

VUCA: This is the reality that supply chain organizations are having to cope with the unprecedented scale of disruption.

By Philipp Meier, Supply Chain Director, Competitive Capabilities International (CCi) Europe

Volatility, uncertainty, complexity and ambiguity: This is the reality of the global economy today and for the foreseeable future, with manufacturing and supply chain organizations having to cope with the resultant, unprecedented scale of disruption.

In theory, after two and a half years of seismic upheaval in established ways of working and doing business, the manufacturing sector should be in recovery mode. But the situation is not being helped by a staggered emergence from the Covid-19 pandemic, taking various forms in different parts of the world.

Global supply chains are in the spotlight for their fragility, exposed, as one example, by the grounding of the Ever Given container vessel in the Suez Canal in March last year which blocked the artery for 13% of global trade for six days. The black swan event cascaded into widespread supply chain disruptions lasting six months.

Brexit-related uncertainty over the Northern Ireland Protocol threatens the flow of goods in Europe and may lead to a tariff war. The conflict in Ukraine severely compromises nearly eight million Tier-1 or -2 global suppliers in terms of their relationships with Russian enterprises, according to a recent report by business intelligence provider Dun & Bradstreet. A local example of supply chain vulnerability is the widely reported baby formula shortage in the US attributed to a range of manufacturing and supply chain issues.  

The evidence is clear: The corner is yet to be turned on manufacturers’ intense difficulties over the last few years.

Challenges are pervasive

Hanging over literally everything is climate change. Adherence to regulatory changes necessitated by the push towards net-zero carbon emissions comes with process and cost implications. Critically, too, the direct impact upon raw material sourcing and energy prices is a fundamental climate related challenge, right now and for the estimable future.

All of this means that supply chain leaders are having to navigate a perfect storm of upstream and downstream complications and pressures. Supply networks are simply not functioning in the manner they used to, and very few supply chain professionals have ever experienced anything near this wholesale level and consistency of turmoil.

Practical, focused solutions

The short-term, if not immediate, priority is to minimize disruptive impacts. Day-to-day operations must be reviewed for robustness and fail-safe procedures. A good place to start is to document the mapping of all processes; this often highlights systems flaws and areas for operational improvement. 

Operations review meetings should be robust in tracking KPIs, early flagging of possible problems, and escalating rectification decisions as necessary. Depending on the risk involved, a crisis tower – a central, dedicated and supervisory team monitoring business-critical indicators – may even be warranted as a constant short-term management measure.

Medium term, the focus must be on building a degree of redundancy into the supply network in order to reduce risk and enhance business continuity. A comprehensive review of the supplier base will most likely reveal opportunities to further tighten cost and quality parameters. But over-and-above these, the objective should now be to look for indicators of dependency on selected suppliers. An in-depth sourcing matrix should be used to construct a detailed risk assessment which digs deep into, among others, geographic spread and specialized materials or component supplier profile. The key objectives are to identify opportunities for diversification and to put in place backup alternatives. Paring factory capacity utilization, increasing buffer inventories, and diversifying logistics are other redundancy measures which are important in reducing risk.

Depending on the manufacturer’s specific raw materials and production inputs and its status along the road to full circular manufacturing, addressing the challenges of environmental sustainability may be a short-term necessity. Objectives around the entire supply chain’s carbon footprint, for instance, should be strategically revisited, and the current status audited. Work with targeted levels of suppliers – whether Tier-1 only, or deeper, to Tier-3 or even Tier-4 – to improve performance measures against all environmental standards. Even if not currently mission critical, this is a key future-proofing and competitiveness criterion in the medium term.

Preparing for the long haul

Despite the downsides of redundancies, Lean’s hyper-efficiency and single-minded cost optimization principles may simply be too risky in the current context. Longer-term, deeper supply chain resilience should be created through structural supply chain reconfigurations which will harness greater agility and flexibility. The supply chain ecosystem should be redesigned to absorb learnings from recent disruptions and shocks, including sourcing hubs, manufacturing geographies, supplier decentralization and diversification, and logistics modes.

Resilience is also a function of high-performance habits and problem-solving routines; culture is the bedrock for coping with challenges and change.  

Crucially, the organization’s strategic digital transformation will solidify the end-to-end value network. For example, technology, automation and a digital-first global supply chain strategy has buffered Nike through Covid-19 and the brick-and-mortar retail squeeze. Accelerated digital transformation, including embracing a direct consumer interfacing and sales channel strategy, saw a 33% increase in US sales through its ‘Nike Digital’ applications and channels. The company’s Q3 F2022 earnings report indicates that the division now accounts for 26% of global revenues.

In general, leading-edge technologies – including next-generation robotics and process automation, digital twinning, ecosystem collaboration tools and wearable devices – enable better outcomes through data-driven decisions and agility. Digital transformation, if rigorously strategized and implemented, is a significant bulwark against supply chain risks and disruptions. 

Just-in-time is out of time

It’s possible that too many shocks have been experienced, and fundamental flaws revealed, for supply chains to ever revert to a seamless just-in-time concept. The two most important learnings from the past few years are that strategies will need to be developed to mitigate – or indeed capitalize upon – the new normal of volatility, uncertainty, complexity and ambiguity (‘VUCA’).

To counter volatility, redundancies will need to be built into the supply chain in the form of additional inventories, stockholding locations, and staff hires, in a manner balanced with risk modelling. Uncertainty can be mitigated by leveraging data, technologies and predictive analytics to finetune understanding of indicators and trends. To address rising complexity, supply chain leaders should proactively review the organizational design and business structures of their enterprise, and standardize and streamline processes. And the most effective response to ambiguity is the agility and flexibility of the supply chain. Nurturing the problem-solving capability and digital skills of the workforce is crucial in this regard.  

Investments will need to be made toward ensuring the resilience and all-round sustainability of the business. Supply chain leaders who shift their mindsets and approach accordingly will weather the challenges and position their organizations to thrive in the future.

Contact Competitive Capabilities International (CCi) for further information and advice on how to build a resilient, agile supply chain through an integrative approach to continuous improvement.

About the Author:
Philipp Meier is Supply Chain Director at Competitive Capabilities International (CCi) Europe. Philipp has an extensive background in end-to-end supply chain/value chain management and has worked internationally across the plan, source, make and deliver spectrum of the supply chain and beyond. He has held positions of increasing seniority at Unilever and Colgate-Palmolive in the UK, Germany and Mexico for over 10 years and has successfully led projects and teams in the areas of supply chain planning, CPFR, S&OP, warehousing, transportation, order to cash, procurement, manufacturing and business development.

CCi is a privately held global company that enables organizations to deliver sustainable results across the value chain using TRACC, a solution for continuous, integrated improvement.

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