Although the current crisis has sent shock waves through global supply chains – and caught more than a few companies flatfooted – it did not, by itself, cause the breakdown of existing supply chain paradigms. In fact, it surfaced fault lines that were already in place for some time, accelerating the unraveling of a longstanding global trade structure. As a recent white paper by KPMG shows, this earlier paradigm was based on four key principles:
- An accepted belief in the benefits of trade liberalization and global interdependency
- Long-standing labor-arbitrage and cost-of-doing-business differentials that encouraged the offshoring of selected operations and sourcing through lowest-cost suppliers.
- Tax-code provisions that offered advantages to global traders
- Inventory buffering as a primary line of defense against supply risk
All of these foundational truths are now in some state of deconstruction due to geopolitical or market forces in evidence for some time. What has taken supply chain organizations by surprise, KPMG’s white paper asserts, is the pace of change and the new normal of sudden disruption sparked by the global pandemic.
COOs in the spotlight
As companies try to adapt to the new reality, we expect to see strong enterprise COOs play an increasingly prominent role. In our ongoing dialogue with forward-thinking supply chain organizations, leadership teams have consistently expressed interest in elevating the function to become a true strategic partner to the enterprise.
For some supply chain leadership teams, the path of least resistance will be to react and improvise as best they can, on a situation-by-situation basis. In our experience, such piecemeal contingency plans and relatively superficial management tactics will yield piecemeal results and a skin-deep business resilience.
Our experience suggests the supply chain organizations that will emerge strongest are those willing, by contrast, to see current emergency conditions as their opportunity to systemically overhaul their entire operating model.
Forward-thinking COOs will be in the middle of this transformation. The most successful leaders will be those who can distill insight from a sea of data points, distinguish between leading indicators of significant long-term secular trends and high-profile outliers, and turn insight into action. Their mission: Realign their supply chain organization around a new set of foundational competencies to effectively manage disruptions now and in the future.
Insight and collaboration
To successfully navigate the new normal, businesses will need to gain greater visibility into their supply networks in order to quickly draw insights and make decisions. To achieve this, many companies have started setting up the equivalent of “traffic control towers” that track their entire supply chain in motion – including all work in progress, inventory levels, and materials in transit.
And to turn that visibility into action, businesses must also be capable of collaborating seamlessly with trading partners. Solutions that intelligently track and trace goods across multi-enterprise supply chain networks will help companies redirect orders instantly to meet shifting strategic business priorities. Think of the current oil glut and the scores of container ships sitting idle across the world’s oceans. The ability to reroute them to find paying markets can give companies a major competitive edge.
Whether they are retooling to make respirators or ramping up production of pantry staples, businesses are now facing a marketplace where extreme demand fluctuations have become the norm. To gain control in this roller-coaster environment, more businesses will need to adopt continuous planning methods and tools.
For many, this will mean syncing sales plans with supply chain operations on a daily basis – a big change from when monthly planning updates were the norm. In a world where demand can skyrocket – or evaporate – overnight, business plans must be continually updated to keep production and pricing in optimal alignment.
As continued volatility forces more businesses to move from supply chains architected for least cost to those built for resiliency and lower risk, developing more flexible sourcing and logistics capabilities will be critical. More than ever, organizations must be able to confidently pick new suppliers and shift resources at a moment’s notice.
Oracle, for example, recently shifted where it sources some of its engineered systems from China to Texas. In most cases, moves such as these are not so much the result of a nationalistic impulse as they are a pragmatic decision to reduce risk and minimize disruption.
The new normal will call for more agile manufacturing operations as well, as businesses rapidly shift production plans and retool factory floors to build products now deemed essential. And with worker health and safety a top priority, manufacturers will need to be able to quickly implement a range of safety measures, such as distancing practices on assembly lines. Workforce safety modules that can be turned on at a moment’s notice can help manufacturers swiftly pivot to address a sudden health emergency.
More broadly, businesses contending with elevated geopolitical risks will need to reevaluate whether to make or buy the products they sell. Getting that mix right will be essential to survival in the years ahead, and manufacturers equipped to flexibly shift production capacity will hold a clear advantage.
For COOs, maintaining enterprise resiliency will be of paramount importance amid heightened levels of economic and political volatility. When things change fast, it’s preparedness that counts and companies will need to have systems in place that support visibility, rapid decision-making, and flexible response. Leveraging artificial intelligence and big data, among other technologies, will be key to managing rapid spikes and drops in demand, finding new sources of supply rapidly, and rerouting transportation to avoid disruption – all while conserving cash and carefully managing working capital. These competencies will be essential to thriving in the “next normal.”