Supply chain issues have never been as live as they are right now. As businesses deal with the knock-on effects of the pandemic, barely a day goes by without some aspect of supply chain disruption or risk being in the news.
Supply chains have always been essential to the effective running of businesses – but they used to function almost in the background. Now, they’re right under the spotlight. CEOs are recognising that the supply chain is in fact an organisation’s ‘middle office’ – the vital element that links the back office with the front office and customer sales. Without a functioning supply chain, everything else falls down.
This realisation has seen a shift of focus from ‘just in time’ to ‘just in case’. Through a combination of the pandemic, Brexit, and the labour and logistics capacity and availability issues that have spun up out of them, businesses realise they can’t afford to leave anything to chance. They are ordering goods in early – even for the Christmas season already – to try to ensure they have materials, components and products available.
Supply chains are a top five risk to growth
The sea-change we have seen is borne out in our CEO Outlook survey, where UK CEOs rank supply chain as a top five risk. Pre-pandemic, the supply chain hardly used to feature. Now, six in ten CEOs say their supply chains have come under increased stress and an equal proportion are focused on ensuring supply chain resilience in case of further lockdowns or other disruptions in the next three years.
As a result, the supply chain is on the agenda at almost every Board meeting, every month, regardless of sector. Board members are becoming honorary supply chain experts. It’s extending to non-executives too, who want to see it on the organisation’s risk register – that’s an absolute must, as executives are now aware that the supply chain is only as resilient as the weakest link.
So, what can CEOs and their teams actually do about the issue to make a practical difference?
It’s worth reminding ourselves what the key challenges are:
- Suppliers may not be making certain products now, and/or can’t be relied on to deliver them on time or as agreed
- The costs of many materials have escalated, and some are in short supply
- Brexit has complicated (and increased the costs of) the passage in/out of certain goods between the UK and EU
- Freight costs have risen dramatically and capacity is highly constrained
- Logistics companies are struggling to deliver goods to businesses or their customers due to staff shortages (especially drivers) and sheer weight of demand.
Clearly, there are no simple answers to such a complex interplay of factors – but there are certainly steps that can be taken to bolster supply chain resilience and shape it for the future.
Gaining visibility to mitigate supply chain risks
Firstly, it’s essential to have end-to-end supply chain visibility. The CEO Outlook shows that business leaders have taken this on board, with nearly half identifying deeper monitoring of the supply chain to better anticipate potential problems as the top mitigation measure.
Achieving this visibility means mapping out and understanding how your supply chain works – all the linkages, interdependencies and pinch points. We’re helping a wide range of clients carry out supply chain resilience assessments. This helps them move on to answer key questions, such as:
- Where do we/should we source our products and services from?
- How much should we buy, and when should we buy it?
- What inventory do we need to hold?
- How exposed are we to conditions and developments in different geographies around the world?
- How do we ensure that we continue to serve our most profitable customers?
- How does our supply chain network need to evolve as we amend our flows?
We’ve been seeing this process in action at increasing numbers of clients recently. Decisions taken have been significant, not merely cosmetic: switching suppliers, changing manufacturing sites, opening new distribution centres and warehouses, and adjusting international product flows.
In many cases we’re seeing clients diversify sources of input by adding new locations as well as a trend towards onshoring some operations – measures identified by respondents to our CEO Outlook survey.
A business-wide approach enabled by data
It’s vital to appreciate that this is not just about sourcing products and how they reach you; it goes business-wide. You need to use your business knowledge and intelligence to understand which customers, products and channels to market are most profitable – and prioritise those.
You may need to work with your customers to change or influence how and when they order, and in what quantities. You also need to think not just about your suppliers and customers, but your suppliers’ suppliers and your customers’ customers. There may be scope to create competitive advantage here. Some businesses are looking at ‘node skipping’ – going direct to a customer’s customer for example.
A key element across all of this is digital enablement and data. Bringing digital enhancements such as process automation into parts of your supply chain can increase resilience, agility and speed. Meanwhile, you can’t make proper decisions without data. Your data lake can be a goldmine of information to help you identify mitigating actions. Data and analytics tools and AI-enabled capabilities can bring real-time insights into your business data, customer data and supplier data.
Being able to collate this data enables you to create live models of your supply chain that show how you can reroute effectively if any single point fails. Don’t forget to ensure that your ERP and related systems are amended too, to take into account any changes to supply chain flows.
Depending on your business, this may not be achievable overnight. But whatever your position, you will almost certainly need to bring elements of your digital and data strategy forward into your supply chain transformation.
Building the supply chain of the future
Looking ahead – don’t expect any return to ‘normal’ (whatever that is) any time soon. Plan for continued disruption and challenge for the next 1-2 years. This is likely to mean higher costs with impacts on the balance sheet and P&L.
On the positive side, there is an opportunity right now to build a resilient supply chain of the future. As part of this, collaboration is very much back on the agenda – working closely with your logistics providers, suppliers, customers and even, in some circumstances, your competitors too. The businesses that get this right will be stronger and more adaptable than ever before.