From Cost to Resiliency: How Supply Chain Priorities Have Changed
- The new normal has redefined business priorities, particularly in the supply chain landscape.
- Traditional priorities such as minimizing inventory and reducing costs seem to have become less relevant amid growing uncertainty.
- Businesses are today striving to achieve end-to-end supply chain visibility.
August 02, 2022 | Supply Chain Software 4 minutes read
“After decades of chasing the lowest possible cost of production, supply chain managers are finding that their remit is becoming increasingly interdisciplinary – geopolitics, public health, and climate are just some of the new considerations of this new remit. The low-cost, low inventory mantras are consigned to the past. The cost-plus world of supply chains has arrived.”
– Economist Impact report
Priorities for supply chain leaders have changed drastically since the pandemic hit the global economy in early 2020.
Coupled with rising inflation, labor shortage, the war in Ukraine, COVID lockdowns in China and a general atmosphere of uncertainty, this has been a testing time for businesses in general and supply chain teams in particular.
Not surprisingly, their key focus areas have changed. And many of these changes in priority seem to be near permanent.
“There is a rebalancing of supply chains. We are now looking at supply chains through multiple lenses,” says Vineet Khanna, global head of supply chain at Nestlé, in this “cost plus world of supply chains” webcast.
Supply Chain Priorities Then and Now
Not so long ago, the performance of supply chain and procurement teams was judged based on their cost reduction achievements and targets. The key objective of cost savings was reflected in their daily work and mode of operation. There was too much emphasis on maintaining just-in-time inventory and lean manufacturing to minimize waste.
All of this changed in early 2020 when supply chain operations were disrupted. Organizations relying on a just-in-time strategy realized its loopholes and struggled to keep going.
According to a new Economist Impact survey of 400 senior level executives commissioned by GEP, there is a clear shift in strategy from cost savings to agility and resiliency. Three in four executives (75 percent of participants) in this survey stressed the need to make significant changes to their supply chains over the next 12 months.
Here are the top 5 priorities for supply chain leaders:
1. Build resilience:
Ask any supply chain leader about their biggest priority today and they would all talk about building resilience and de-risking their supply chain. However, to succeed in this initiative, they must attempt to gain end-to-end visibility of their supply chain network. This, in turn, requires mapping the supply network by looking beyond Tier 1 suppliers. Such visibility can help foresee risks and prepare beforehand. It can also enhance responsiveness and lead to faster response.
2. Diversify supplier base:
Irrespective of the industry they operate in, organizations have realized that they must expand their supplier base. Especially for critical components, they are now looking to work with suppliers that are spread across varied regions and geographies. Such regional diversity will ensure that business operations are not impacted in case there is a supply disruption in one region.
3. Promote sustainability:
Sustainability has become mainstream for several reasons. Not only because ESG targets have become more stringent but also because businesses have realized that they cannot continue operating in the current manner for long. Supply chain teams must play a vital role in this initiative. Given the growing focus on environmental sustainability in particular, initiatives such as monitoring scope 3 emissions have assumed a lot of significance. This requires supply chain teams to monitor — and reduce — emissions that arise from the supply network.
4. Get competitive advantage:
To thrive in the new normal, businesses must clearly identify their competitive strategy and align supply chain operations with this strategy. This is particularly vital in sectors like CPG where consumers now have more choice than ever in the online shopping space. The key in this space is to let consumers know why your brand and products are better than competitors. Such advantage can be in the form of additional warranty on products, or a premium service.
5. Maintain optimum inventory:
In many ways, inventory management lies at the heart of supply chain operations. Continuing to stay lean to enhance efficiency and reduce costs can prove to be costly in the current unstable environment. The better choice, at least for now, is to optimize inventory and maintain a buffer just-in-case stock to prepare for unforeseen events.
Changing priorities have also meant that there must be a change in the way supply chain teams currently operate. Many of them look to leverage technology as they scramble to get back to normalcy and future-proof their operations. Advanced supply chain software can help them succeed at these initiatives and build a truly agile and resilient supply chain.
