By HPA Senior Advisor Alex Nesbitt
I think we can all agree that the past few years have been kind of nuts. We have endured a global pandemic, survived an economic shutdown that has yet to show its full impact, and witnessed Russia’s invasion of Ukraine with countless geopolitical and economic ripple effects. Those on their own would be plenty, but now we have escalating inflation to add to the mix – the worst we’ve seen in the U.S. in decades.
Given these “unprecedented times” continue to be so…unprecedented, it makes total sense that this ongoing stream of shocks has disrupted just about every company’s supply chain. Even though mask mandates have dropped at the federal and (most) state levels, companies are still struggling with work restrictions, logistic bottlenecks, plant shutdowns, and all manner of shortages, including labor, components, energy, and commodities.
Add to this skyrocketing consumer demand, and it’s a miracle supply chains are functioning at all. In fact, we owe an enormous debt of gratitude to the supply chain professionals who have kept things moving along despite the huge gap between demand and fulfilment. They’ve done a truly remarkable job.
And yet…thousands of delayed cargo ships can’t be wrong.
As businesses and consumers alike have come to accept that supply chain disruption is the new normal, companies are rethinking their supply chain strategy with an eye towards resilience. What does this mean, exactly? Regionalization, visibility, supplier diversification, and vertical integration have become widespread topics of conversation within supply chain organizations as they look for strategies that will help them keep up with demand during the next global event. And – if the past couple of years are any indication – there very likely will be (at least) one.
What does this mean for your business?
If your organization has a new supply chain strategy in the works, here are five recommendations that will make your process and results more robust:
1) Think beyond the supply chain to the value cycle.
Your supply chain is not the only thing that’s been disrupted. Customers and employees have been disrupted, too. The heavy impact of COVID-19 has resulted in new needs and demands with the expectation of new value propositions designed to meet those needs. By coupling your supply chain redesign with a rethinking of your customer value proposition and your employee value proposition, your strategy development process will likely produce stronger outcomes.
2) Build for the future, not the past.
When organizations suffer setbacks, one of the biggest mistakes they make is focusing on preventing the past from ever happening again. And while this mindset is completely understandable, it’s far more effective to design for a range of future scenarios. Many businesses tend to adopt a fail-safe psychology, focusing on eliminating sources of past failure. However, a healthier and more resilient approach is to adopt a safe-fail mindset that instead focuses on the ability to recover and better cope with disruptions when they arise – and, again, they ultimately will.
3) Prioritize value creation over cost efficiency.
Disruption breaks things, but it also creates new and often exciting opportunities for businesses. Just think about the companies that pivoted to creating PPE during the early days of the pandemic. Customers, employees, suppliers, and businesses are all reflecting on what recent disruptions mean to them and trying to figure out how they should adjust. Many will make investments to improve their resilience and ability to adapt to our new normal. Investments in supply chain resilience will also change the properties and capabilities of your supply chain. Don’t let the tendency to focus on cost efficiency become a trap that prevents you from seeing new opportunities when they arise, even if they result from major global events. Creative examination of both supply and demand side changes will reveal new ways to create value and improve risk management.
4) Anticipate slow disruption.
While abrupt and acute disruptions have dominated our attention over the past few years, and rightfully so, it’s imperative businesses resume or jumpstart addressing critical initiatives like sustainability, shifting demographics, and technical innovation to avoid anticipated disruptions – even if they are five or ten years off on the horizon. While some may see these trends as increased costs of doing business, proactive leaders will see them as opportunities. By thinking critically and creatively, businesses can transform challenges and disruptions into advantages. Factor in demographics, incorporate long slow trends, and when you redesign your supply chain, be inclusive of other clear sources of disruptions so you don’t have to retrofit later as a reaction to them.
5) Pressure test your strategy.
The closer in proximity we are to just about anything, the harder it becomes to see it clearly. While we can mitigate risk by diversifying the team that develops the strategy, every team has its blind spots. One of the best ways to identify unknown risks and exposures is to use an adversarial process to test the strategy. This approach is often called “Red Teaming,” a concept developed by the military and intelligence agencies to act as a “devil’s advocate” to stress test their strategy, reveal weaknesses, and assess preparedness. A good “red team” (if you don’t have one, you should) will aggressively challenge your assumptions and say things that might be difficult for leaders and stakeholders to hear. Engaging the fresh eyes of outside resources to perform the “red team” activities is highly recommended. Ask them to find ways to break your strategy. This involves thinking of scenarios nobody else in your organization or industry has thought of, then considering all the possible outcomes – both low and high probability – that could break your supply chain. Rather than building point solutions to the specific insights that emerge, focus on making your strategy more robust to the pattern of insights that emerge.
The big takeaway from all of these points is that supply chain issues are more than just supply chain issues. Dealing with them may be challenging, but they are not problems to be avoided or delegated. Instead, it’s key to approach them as opportunities for leaders to reshape business strategy in ways that generate value and advantage.
Go beyond making your supply chain more resilient and build a company that thrives on disruption.
About the Author
ALEX NESBITT is an HPA Senior Advisor with 30+ years of management consulting experience and a strong track record of partnering with CEOs to tackle issues related to strategy, organizational and operational effectiveness, and performance improvement. Alex is a former BCG Managing Director who led the firm’s West Coast Industrial Practice. After leaving BCG, Alex founded a third-party logistics firm, which he later sold to Ryder Logistics.
