A persistent pandemic around the world and global geopolitical conflicts continue to dominate headlines. Navigating uncertainties and managing supply chain challenges accordingly has, out of necessity, become a top business priority.
The Business Costs of Supply-Chain Disruption report by the Economist Intelligence Unit estimates that the disruptions of the past two years are costing companies, on average, 6 to 10% of annual revenues. This doesn’t include reputational costs as companies struggle to maintain supplies of their goods.
The report goes on to say that, consequently, businesses are exchanging efficiency for greater resilience. Some are prioritising costlier suppliers in less risky markets.
The EIU cautions that such strategies come at a cost. “But firms are working to mitigate these costs through investments in technology, simplified and regionalised supply chains, and, in some cases, simplifying the design of goods to make components easier to source, as this report discovers.”
Kuntha Chelvanathan, partner for supply chain, and procurement transformation at IBM Consulting, APAC, noted that during the pandemic companies found that they had limited visibility over their supply chains.
Lessons learned from the pandemic
She noted that the pandemic revealed that supply chains were primarily built on efficiency. This meant these were very susceptible to disruptions because the supply chain itself is a lot of links.
“A supply chain consists of multiple links, sometimes there can be like 20 to 30 links in that chain. If they are just-in-time, built for cost efficiency, then just one disruption in one link could mean that the supply chain doesn't work anymore.”
Kuntha Chelvanathan
She also noted that supply chains were built based on where products (raw materials) are sourced and manufactured. “Supply chains were built for mass production. We found that in an environment with multiple disruptions and multiple countries being affected, this means that supply chains were not resilient,” she continued.
The digital imperatives
So how do we bring more visibility into the supply chain?
Chelvanathan believes that effort needs to go into making the supply chain more visible and flexible. This would entail integrating automated workflows across the organisational functions.
“Automated workflows mean building more real-time visibility, having collaborations with suppliers and customers, and getting more insights so you can take action and be more flexible,” she added.
She noted that among talks with supply chain customers globally, 56% are currently operating on hybrid cloud, while 60% of them are further investing in digital infrastructure so they can scale and deliver value. She also acknowledged that adopting sustainability initiatives has also come to the fore of priorities.
What and why of visibility
Supply chain operations involve planning for customer demand and then executing those plans. “Visibility in the lowest common denominator. It ensures that those plans, be it sourcing from suppliers, inbound transport, lead times manufacturing schedule, finished product distribution – they are all progressing without disruption,” said Chelvanathan.
She noted that if one element cannot be executed as per plan, for example, if you can't source certain products from certain suppliers, that means the final product cannot reach customers.
“Visibility is being able to see in real-time what is happening in the supply chain across all those elements – sourcing, production, distribution,” said Chelvanathan.
She cautioned that visibility is just the beginning. “Looking forward what the pandemic has taught us is that uncertainty will likely continue to be the norm in the years ahead,” she confided.
Action items for the chief supply chain officer
To Chelvanathan, the first order of business is enabling visibility. “Once you have visibility, we can build AI and intelligence into the supply chain. We can start looking at what's going to disrupt the supply chain and be prepared for that,” she posited.
Using the term agile, she suggested having action plans that can be executed when called for.
“The third action item is building ways to respond to certain criteria in the marketplace, be it sustainability goals, be it new product development, even disruption,” suggested Chelvanathan.
She concluded that coming into 2023, what will be important to supply chain operations and a key imperative for chief supply chain officers should be managing disruptions better, building flexibility, and trying to achieve the sustainability goals of the organisation so that it becomes a core focus, she concluded.
Click on the PodChat player to hear in more detail Chelvanathan’s views and recommendations for building greater resilience in the supply chain.
- For chief supply chain leaders, what are the top three learnings since 2020?
- How are these learnings translating into a change in terms of how supply chain systems and processes are designed and operated?
- Specific to visibility, define for us what is visibility in the context of the supply chain.
- Uncertainty will likely continue to be the norm in the years ahead. Given this, how should the CSCO help better prepare the organisation to improve the supply chain’s resilience?
- What is important to supply chain operations going forward? What are the key imperatives they will focus on?
