June 27, 2023 | Supply Chain Strategy
The one priority that is common to all businesses today is to build a supply chain that is agile, resilient and can withstand disruption.
No less important is the need to focus on sustainability and comply with increasingly stringent environmental, social and governance (ESG) regulations. These regulations also require companies to be transparent about their sustainability goals and metrics.
And last, but not least, costs can never be deprioritized.
Economic slowdown, geopolitical conflicts, supply chain disruptions and rising uncertainty have compelled businesses across industries to rethink their priorities in the short and long term. In today’s complex business landscape, they must focus on multiple priorities at the same time.
The 3 immediate goals are:
How can businesses strike a balance and build capabilities to simultaneously achieve all these goals?
Firstly, businesses must understand that these goals are not independent but interlinked. A business that invests in nearshoring and shortens its supply chain, for example, is likely to reap cost benefits in the long term.
By bringing inventory closer to the end markets, this strategy can reduce lead time and minimize disruption.
Like nearshoring, businesses have also started engaging in a strategy called ‘nearstoring’, which involves storing material in large quantities closer to the point of sale or end use. This strategy was a key reason for declining warehouse vacancy rate in the U.S., estimated to be 3% in the first quarter of 2022.
Diversifying the supplier base is a key strategy for all businesses. Companies are setting up secondary suppliers in different regions that can help redirect production volumes when needed without losing a lot of momentum.
Some companies are going a step further and building direct business relationships with their sub-tier suppliers, says Tom Derry, CEO of the Institute for Supply Management in a new Harvard Business Review (HBR) white paper. By doing so, they are creating opportunities to work directly with lower-tier suppliers, when needed.
To become truly resilient, businesses must leverage technology that can provide real-time supply chain visibility and connect all stakeholders.
Leading technology company Hewlett Packard Enterprise (HPE) has implemented a “one network visibility platform” to connect all its partners across multiple levels of its supply chain on a near-term basis. This allows the company to have real-time visibility and a digital connection with all stakeholders.
Along with improved visibility, technology enables companies to forecast accurately, optimize inventory and drive changes necessary to manage the new priorities. Technology can also help identify risks lurking in the supply chain and make proactive changes to mitigate their impact.
HPE has implemented an AI-powered advanced planning system with dynamic scenario capabilities. The system allows the company to identify risks with near real-time visibility into purchase orders, supplier commitments and shipment tracking.
Businesses must realize that building greater efficiency, resiliency and sustainability are not mutually exclusive goals. In fact, they are increasingly linked in a business landscape that, while uncertain, offers a lot of opportunities to align these goals.
And there are many benefits of aligning these seemingly conflicting goals.
Elaborating these benefits, Joanna Kostecka, vice president of global operations planning and materials management at HPE, says, “What we are finding is that as you work on resiliency, agility and ESG, you’re more likely to find that your costs will drop, because when your supply chain is agile and resilient, you are going to have a lot [fewer] stockouts and last-minute shortages that can prove very, very costly.”
WestRock, a leading packaging company, has redesigned its truck routes and made them circular by connecting its mills, processing facilities and recycling plants. The company finds that its new approach to truck routing not only improves efficiency but also drives its ESG goals.
Clearly, the goals of building resiliency, sustainability and efficiency are mutually supportive and can together provide healthy return on investment.
To succeed at achieving all these goals, businesses must redesign their supply chains with the help of technology, innovation and collaboration.
Read the HBR white paper to learn more ways of redesigning supply chains and meeting multiple goals.