Part I: Implementing 21st-century supply chain - now

This blog post is divided into two parts. In part I, I argue that it is time to re-design our supply chains drastically if we want to continue competing and living amicably for the rest of this century.

The blog post fits well these days since supply chain re-design is one of the big topics of world leaders at this year’s WEF in Davos, Switzerland - just around the corner. So, here we go:

Please consider the past year: how many products did your family order that took longer than expected to arrive or experienced delays? How often did your company mitigate value chain disruptions due to missing or delayed goods? Did your company see a dip in revenues or margins based on this?

In my view, these disruptions are not temporary issues caused by the aftermath of the pandemic but a systemic phenomenon.

The "black swan" event, described in Nassim Nicholas Taleb's 2007 bestseller, has become a common occurrence, flaunting its black feathers in abundance. Though these events may still be irregular in a local sense (*), the global connectivity of people, goods, and information has made them a constant presence. In response, companies have had to adapt by advising customers of longer lead times, increasing inventory, and seeking alternative, often higher-cost, supplies. 

The consequences of not changing supply chain design go beyond impacting customers and profits: Greenhouse gas emissions since 1990 have made up 50% (!) of all emissions since the beginning of the Industrial Revolution in the 1750s. This trend is only set to grow with the continued economic growth in China, India, and Africa, which comprise 52% of the global population (vs. the mere 14% that Europe and the USA represent today). 

While many supply chain leaders have successfully designed and led global supply chains in the past thirty years (me included), the changing conditions now require a shift in approach. The phrase "think global, act local" no longer applies to "glocalization" (a meaningless word anyway) but should today be seen as a recipe for the more actionable concept of re-shoring.

Re-shoring, or designing shorter and tighter supply chains that source and produce locally for local customers, can address the demands of protectionist governments, improve working capital and cash flow, reduce lead times and transport costs, and increase flexibility. Re-shoring can also help to reduce greenhouse gas emissions quickly. It even addresses the need for a renewed sense of self-sufficiency in strategic categories (military, computer, - even PPE as we had to learn etc). It is not a new concept, and the first automotive OEMs have started tightening their supply chains around a more continental or regional focus.

However, re-shoring via a simple lift & shift will, in most cases, lead to increased cost of sales and capital expenditure requirements (i.e. multiple tooling).

Are we stuck now between two undesirable options? 

There is, in my opinion, a way out of this dilemma: it is time to design true 21st-century supply chains based on principles we already know well from our production and development areas: Agility & Digitalization.

You will now probably lean back and think: “Another buzzword puzzle. Or, our supply chain is already agile and digital”. But, let’s be honest with ourselves...is it really, though? 

Let’s start by defining the digital and agile supply chains so we have a common baseline.

What does a digital and agile supply chain entail?

A digital supply chain relies heavily on digital technologies and data analytics to optimize performance and efficiency. It involves using digital tools and platforms to manage and coordinate the various elements of the supply chain, such as demand planning & forecasting, sourcing, production, warehousing, transportation, and customer service. Digital technologies can automate and streamline most processes, improve communication and collaboration among supply chain partners, and enhance decision-making and problem-solving capabilities. A digital supply chain aims to increase agility, responsiveness, and competitiveness by leveraging the power of digital technologies and data analytics to optimize performance and efficiency. 

An agile supply chain linked to our production systems is designed to be responsive and adaptable to changes in demand, market conditions, and other variables, allowing for quick and efficient adjustments to keep the supply chain operating at optimal performance. This can involve various strategies, such as maintaining a diverse network of suppliers, using advanced technologies to monitor and forecast demand, and implementing just-in-time production and delivery methods. An agile supply chain aims to increase competitiveness and customer satisfaction by responding quickly and effectively to changing market conditions and customer needs.

Most supply chains are not there yet; many companies have not even started, besides some intellectual musings.

The good news is that digital and agile pockets of excellence exist in most companies (production, development, IT, and sometimes sales). It is about tapping into the knowledge under a clear project focus and investing in areas with a gap in technology or process competence. For all others that do not see the need, I recall a saying of a former colleague of mine: survival is optional.

To design a 21st-century, digital & agile, competitive & resilient supply chain, we must understand the starting point in our firms and identify the gaps that need addressing. If you want a simple set of questions to diagnose your current state, please answer the assessment questions on helmigadvisory.com.

Part II of this blog post will address the “size of the prize” for changing supply chains and give a hands-on example of how it can be done.

(*) although people in Africa, the Indian sub-continent, Australia and the USA might find the cadence of natural disasters (droughts, floodings, forest fires, hurricanes, polar vortexes) no longer irregular.

Stay safe. Be bold.

Daniel

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