Supply Chain

Transforming supply chain management in these interesting times

An ancient Chinese expression has the speaker ‘blessing’ the listener thus: “May you live in interesting times” –  a loaded blessing that many among the current generation may have received indeed! We certainly live in interesting times.

We live in a multipolar world, with many rising economies such as the BRICS (Brazil, Russia, India, China and South Africa) vying to increase their GDP and oust the US from the top spot. New alliances such as the G-20 are emerging. New supply chains are forming as countries experiment with new ways to improve the lives of their citizens and secure their access to goods and markets across the world.

From ‘fragile’ supply chains built on a ‘cost of goods’ mentality, many experts now guide supply chains to be ‘antifragile’ and build in fail safes and assess the total cost of ownership from source to destination. AI-powered analytics and forecasting capabilities give supply chain management (SCM) players unprecedented ways to optimise the chain. Many case studies with technologies such as blockchain have proven to be very successful, making every contract transparent and traceable.

Yet, challenges abound: besides the geopolitical movements and black swan events that could be unprecedented or sudden, losses from supply chain breakdowns remain a pervasive concern – up to 40% of annual EBITDA ( Earnings Before Interest, Taxes, Depreciation, and Amortization) in some cases! The causes for this could be many: from lack of transparency to theft, cyberattacks, severe weather events or scarcity of fuel, real issues continue to wear down the chains. Regulatory compliance requirements in many geographies, including environmental and sustainability related ones are on the increase. The entropy, it seems, is increasing.

What can the supply chain management sector do amidst all these moves on the global chess board? What steps can they take to transform SCM and move it into this brave new world? Let’s read the tea leaves and make some recommendations!

  1. Build better shock absorbers:  As enumerated before, every industry has a multitude of ‘shocks’ based on their geographical footprint. Some shocks are pervasive across geographies or are global. For example, any supply chains that have Japan or Turkey as a member must factor in earthquakes. With severe weather events getting more frequent, SCM leaders must review their risks and risk management measures more frequently, and build better ways to absorb such shocks. It’s not just weather events,  it could be a regional, such as SARS, or a global pandemic such as COVID, terrorism, IP theft or many other factors. The key to weathering all these is performing consistent reviews, deploying predictive analytics and building redundancies.
  2. Look at the weakest links in the chain: During value chain review, special attention must be paid to the weakest links in the chain. For example, some value chains that are rooted in capital-intensive industries may be particularly vulnerable to black swan events. Building redundancies in the supplier base across multiple geographies may be a strategy that bears consideration in this case.
  3. Revisit the big picture: When Russia invaded Ukraine, European nations broke economic relations, disrupting many supply chains, particularly those in the energy sector. What is the strategic risk presented by such supply chain disruptions on the entire enterprise? Can a cyberattack on shipping lines, for example, bring down a CPG giant? While near-term tactical plays and manoeuvres are needed on a daily, almost hourly basis, corporate boards must ponder the impact of supply chains on the enterprise, and vice versa.
  4. Money continues to matter: When Elon Musk’s SpaceX bid for rocket-launching contracts with NASA, they proposed a radical new way of ‘all or nothing’ contracting that disrupted the traditional, staid way of financing rocket launches. The industry that had been in stasis for decades was suddenly turbo-fueled (pun intended). Similar, radical redesigns of financial models may be called for in value chain management. Rather than monitoring chains on a cost basis, modern SCM planners look at assured revenues and payoffs. Such models may even help enterprises weather disruptions better.
  5. Consolidate, sustainably: With every country and corporate entity chanting the sustainability mantra, and justifiably so, it’s time to consolidate supply chains, albeit sustainably. Near-shoring vendors and suppliers, preferring local sources over far-off ones for raw materials, and paying attention to sustainable disposal of returns and rejects are some of the strategies SCM managers must integrate into their value chain management.

Supply chain management is an ever-evolving field. These recommendations can help launch the next generation of antifragile, resilient, sustainable chains that may help enterprises enter the next two decades profitably.

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