In the wake of COVID-19 and widening geopolitical risks, companies around the world are aiming for supply chain agility, resilience, and efficiency, but how do you achieve these? In this blog post, you’ll learn:
Due to market instability, slowing demand, increasing costs, COVID-19 aftereffects, the growing impact of climate change, and geopolitical conflicts, the global economy is facing a significant decline. At the beginning of 2023, the World Bank predicted that the risk of this economic recession may affect supply chains worldwide and disrupt the supply chain balance with:
And this is happening right now. A separate PwC survey has found that more than two-thirds of US manufacturers agree that their suppliers are facing operational issues. But how serious is it?
Given the complexity of modern supply chains, even minor fluctuations in demand or any other disruptions can have a bullwhip effect with amplified impacts throughout the entire supply chain.
To weather the latest recessionary risks along with long-term disruptions, the focus should be on enhancing supply chain agility and resilience.
The current conditions have weakened every link in the value chain and forced manufacturers not only to work around today’s disruptions but also those of the future. The overarching approach to easing these risks is to strengthen resilience and agility.
– PwC
In times of uncertainty, supply chain management has to adopt innovative strategies that can effectively address the changing needs of customers. So, in order to thrive, modern supply chains must be more agile – flexible enough to adapt and stay ahead of the competition – and resilient – able to quickly recover when disruptions hit.
An example to illustrate agile supply chain practices is Amazon, which adjusts prices and inventory levels in real time to respond to competitors’ moves, among other things.
However, the challenge with agility is that supply chain officers often prioritize improving tangible elements of supply chain performance such as cost, service, quality, inventory, and asset performance. The metrics and performance expectations for these elements are well-defined. While the ability to save costs and withstand a crisis is essential, it is agility that distinguishes operations that thrive from those that barely survive in the long term.
Companies with more agile supply-chain practices had service levels that were seven percentage points higher and inventory levels that were 23 days lower than their less agile peers did.
– McKinsey&Company
Supply chain agility is beneficial in three significant ways:
These enable organizations to respond more quickly and efficiently to new opportunities.
To establish a resilient supply chain, managers need to develop a network that can sustain unexpected shocks and disturbances. Meanwhile, it should be flexible enough to adapt quickly to changing circumstances.
For example, during the COVID-19 pandemic, distilleries shifted to producing hand sanitizer, and textile manufacturers retooled to meet the shortage of personal protective equipment.
Now, businesses are more eager than ever to take action to increase supply chain resilience. WTW reports that 65% of companies have already made the required improvements, and 58% plan to make significant changes in the next year.
So, to stay competitive and enhance supply chain performance in this fast-moving, fragmented, consumer-centric world, you will need the simultaneous deployment of agile and resilient approaches.
The need for agility and resilience in supply chains does not mean you, as a supply chain manager, can lessen your focus on efficiency. You should still aim for cost reduction. Deloitte suggests striking a balance between these three elements in order to reach an optimal supply chain design.
A tripolar strategy for achieving agility, resilience, and efficiency in supply chains. Source: Deloitte analysis (click to enlarge)
Digital transformation and modern supply chain technologies can help make your supply chain agile, resilient, and efficient and give your business the competitive edge to respond quickly to both disruptions and opportunities.
A digital supply chain offers better transparency regarding its components and actions as compared to traditional supply chains. With real-time visibility into supplier performance, you can easily identify potential gaps that may lead to disruptions, and address them accordingly.
Moreover, digital supply chains are designed to focus on customers' preferences, so you can improve customer experiences by better understanding their needs.
The traditional linear and disconnected supply chain model is gradually giving way to a more cohesive and interconnected network of trading partners. By connecting various stakeholders, including customers, this digital supply chain network would enable all parties to respond more quickly to the constantly changing market and better adapt to it.
Shift from traditional supply chain to digital supply chain (click to enlarge)
Identifying potential problems and predicting their consequences in traditional supply chains can be time-consuming and unreliable. When planning changes both on tactical and strategic levels, you would need a tool to test different options and safely look into the future.
As a supply chain manager, you should understand what the outcome will be for each decision you make and calculate how it may affect KPIs. The task is complicated even more because the most commonly adopted tool, spreadsheet-based modeling, is often not capable of handling complex, interdependent, and time-related systems, such as supply chains. More
Dynamic simulation modeling and optimization are solutions that can empower you with an exhaustive set of tools for detailed end-to-end supply chain planning, supply chain design, and operations analytics.
Risk analysis is the process of identifying and analyzing potential issues that could negatively impact key business initiatives or critical projects in order to avoid or mitigate such risks. By running what-if scenarios, you can then stress-test your supply chain in emergency situations and develop a plan towards agility and resilience.
Economic recessions, geopolitical shifts, and other supply chain disruptions could happen, and your goal is to make sure your supply chain is agile and resilient enough to avoid risks or quickly recover if anything unexpected happens.
And while these continue to shake businesses, supply chains will still be expected to provide timely deliveries to customers. That means that retail stores, e-commerce sites, inventory control points, distribution and fulfillment centers, upstream suppliers, and manufacturers all must align with consumer demand.
To stay competitive and handle these requirements, supply chain leaders must introduce innovations to their business processes. But to evaluate and test them before implementing them in the real world, you would need the help of advanced supply chain technologies, such as supply chain simulation and optimization.
Download this white paper from The Logistics Institute to learn more about optimization, simulation, and supply chain digital transformation.
