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Resilient Supply Chains: Best Practices in Turbulent Times

By aim10x|

The closure of a port, a hurricane on the horizon, a pandemic – what else is coming?

On October 20th, former Senior VP Customer and Logistics Services at Johnson & Johnson, Katherine Ross, led a highly interactive aim10x roundtable on how organizations can prepare for future disruptions.

Three Measures of Resilience

For the first time in memory, the supply chain is featured prominently on the front pages of newspapers as the Covid 19 pandemic snarls goods and services delivery globally. Supply chains aim to be both agile and resilient, ready to tackle disruptions head-on and come out the other side relatively unscathed. However, building resilient supply chains can only happen with robust and directed investment, but that may lead to a negative short-term impact on cost performance. CSCO’s need to intelligently manage this tradeoff to deliver their enterprise not just a cost-efficient supply chain but a genuinely robust one.

BCG has carried out an analysis of companies going through crises and evaluated their performance and response. Their estimates say that performance during a crisis has three times more long-term financial impact than performance during more stable periods.[1]

As Katherine said:

“My view is that there’s no faster way to go from supply chain hero to supply chain zero than to underperform relative to your competition in a crisis. BCG looked at the typical recovery curve for a company with a very resilient supply chain versus one that was not as well prepared and ready to respond. They measured the performance of resilient supply chains across three dimensions:

The first was how big was the initial impact of the shock; the second was the speed of recovery, and the third was the overall scale of recovery. As we reflect on the supply chain crises that we’ve all been involved in over the past 10/15/20 years, we can all think of examples where some companies have been slower to react and recover. In these instances, their overall recovery was not as effective long term as initially hoped, and it hurt their performance and reputation.”

Invest toward Resilience

Achieving resilience requires significant investments. The top 4 areas for most significant impact are:

  1. Investment in inventory and warehousing provides vital buffers for both supply and demand shocks.
  2. Investment in supplier and customer relationships creates a much broader array of response options during a disruption. A current example is how Toyota actively managed its supplier network to delay the impact of the chip shortage on its network, creating a market differentiator for the automotive giant for an extended period.
  3. Investment in IT capabilities is critical to sensing disruptions earlier and to replanning around them rapidly. The use of AI to create self-healing networks is an exciting development in SC planning capability, as it is using software to reroute goods and services around the supply chain in response to disruption.
  4. Finally, investment in organizational capability is essential. Failure of organizations to manage crises effectively can be just as damaging as failing to invest in overall resilience.

Best Practices

The group discussion highlighted several emerging best practices, many of which were learnings from the pandemic response:

  • Global versus regional crisis management response. Supply chain has historically been focused on regional crises – port strikes, natural catastrophes – which resulted in decentralized crisis management response capabilities. Participants agreed that the global nature of the pandemic had resulted in a need for a more global response capability. While demand sensing and shaping remain at the country level, supply response has been shifted to a more global view to enable rapid tradeoffs between regions.
  • S&OP cadence. Several participants noted that they had switched from monthly to weekly SOP reviews, focusing on responding rapidly to demand shifts in different geographies and market segments based on the evolving nature of pandemic intensity and public health protocols. In parallel, S&OE’s (Sales and Operations Execution) importance has grown. With Christmas around the corner, S&OE gives companies the tools to track down areas of last-minute revenue growth. As a guest on the session noted, S&OE and S&OP are effective when balanced properly; this seesaw action allows the company to plan both the granular and the big picture in the short and long term.
  • Crisis management capability. Many examples arose during the discussion of areas where companies are strengthening their crisis management capability. The most prominent were control towers which rapidly sense disruption in demand or supply, dedicated crisis management teams that operate cross-functionally to speed decision making, and strengthened communications with customers and suppliers to ensure the entire extended supply chain acts in a choreographed fashion.

All agreed that the past 18 months had seen tremendous improvement in long-term supply chain resilience that would pay dividends in the future.

[1] “Becoming an all-weather company”, Reeves, Nanda, Whitaker, Wesselink, BCG Henderson Institute – https://www.bcg.com/publications/2020/how-to-become-an-all-weather-resilient-company

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