Ø You must understand your supply chain
as to its size and complexity. Look at it as upstream and downstream. Supply
chains differ for each company and situation. Know how it is designed and
operates—how do you have this particular supply chain and why. You need hard
inspection and introspection of it. How can you change what you cannot see and understand?
Ø Handling and rebounding from serial
disruptions go beyond resilience, especially with the two major ones. That
reflects more of a one-time, limited-duration occurrence to deal with. You need
to create a supply chain that has rolling adaptability to manage all that may
happen.
Ø Your approach for identifying risk and achieving supply
chain rolling adaptability should include:
o
Map
and assess.
o
Recognize
trends.
o
Develop
a strategy.
o
Make
structural change.
Ø Four cuts for mapping are operations,
assets, inventory, and supply chain participants. For many, the focus should be
upstream where suppliers and their suppliers reside. Covid showed weaknesses in
supply chain operations which had a major impact on inventory end-to-end.
Mitigating chaos starts upstream and with mapping.
Ø Some trends should be recognized in
building adaptability. These are technology, derisk/decouple, and sustainability.
These can assist in creating adaptability and can relate to the two key
disruptors.
Overview. Global trade supply chains have gone through four years of disruptions.
The economic impact shows the extent of decades of outsourcing by retailers,
manufacturers, and distributors/wholesalers.Events have validated the strategic importance of supply
chains. Those who did not recognize it received a difficult awakening. And it is not over. More is coming. We are in the
Era of Supply Chain Disruption. How ready are you?
So what are companies to do with the ongoing supply chain issues?
Forget “reset” and “normalize”; forget talking about “pre-pandemic” and
“before”.
What we are doing here is to take the ongoing disruptions—and
they will be ongoing-- to supply chains and present a way to deal with the
ongoing chaos. Think beyond business continuity. Think of survival and
adapting.
A comment. Depending on your business type, you may need two takes
on all this. Your company and your supply chain. And, if you are a supplier,
manufacturer, or wholesaler, your customers, their supply chains, and what they
are doing.
Continuous Disruptions. Disruptions have different aspects—how quickly each
occurs, its duration, and the impact on trade, industries, and geography.
These have included and are including:
·
Pandemic. Covid
was the start of the turbulence. Shutdowns moving around the world. Supply
chain and logistics upheaval. The threat of another epidemic on a worldwide
scale cannot be ignored.
·
Shortages.
This is what got the attention during Covid. Shortages of finished goods, raw materials,
components, and assemblies. There were also logistics/transportation shortages
across modes that compounded getting products to move. The result was forget
the product “flow”.
·
Demand—Surge and Drop. This ties in with the shortages. Consumers working from home
and what they wanted versus what retailers expected. Then as Covid smoothed
out, there was a demand drop as consumers made more adjustments and dealt with
port congestion. This led to companies overstocking products and buying the wrong
items. The time of excess inventory and its hit on the Profit & Loss with
the transportation and warehouse spend and on the Balance Sheet with carrying
all the inventory. From the start to now, there was a dramatic shift in what
was bought. This was more than a bullwhip.
·
Inflation and recession. Inflation has impacted the cost of goods and materials for
businesses and consumers. The price increase of inflation affects demand by
businesses and consumers which lessens revenues to buy inventory and support
operations.
Shortages in the supply chain have
been recognized as a factor in inflation. There is also talk of global
deflation. That would discourage spending and lead to an economic
downturn.
This also shows interest rate
increases that have been used to temper inflation. In turn, interest rates
impact the cost of and what companies can do to buy inventory and what they can
apply to supply chain investments, such as technology.
Recession has an additional influence
on demand for goods, and, in turn, how to forecast and manage inventory. There
can be slow turns in the purchasing spend for products which means less sales
and lower liquidity. It also means reduced demand for logistics services.
·
Financial. Call
it a bank crisis. Banks in the US and Europe have failed. How far this goes and
how long it takes to play out are yet to be determined. It could create a
credit crunch. Depending on how deep of pockets a company has or does not have,
this could create problems for customer-buying and with purchasing inventory
and investing in supply chain technology and infrastructure.
·
Technology. We
are in the Fourth Industrial Revolution—Technology. This creates opportunities to
improve end-to-end operations. Moreover, they are an adaptability factor. We
will have more on this later.
·
Geopolitics. Geopolitical instability is serious and the uncertainty it
brings to trade supply chains, how it may spread, and how long it may last. It brings very high risk, even war risk, to supply chains and has the potential for long-term effects.
For example:
o Russia, the invasion of Ukraine, the
sanctions, and those who work around these restrictions.
o China-US. There have been tariff
issues and others that impact trade.
o China. This includes its views on
Taiwan and the important logistics Taiwan Strait, aiding Russia, and actions with Philippines and in
the South China Sea.
- Now there are the Middle East with Israel and Gaza, and the Houthi attacks on commercial shipping in the Red Sea as entrance/exit to the Suez Canal. This brings the risk of becoming a regional, or even bigger, conflict.
- Potential oil supply shortages with its impact on end-to-end supply chains and logistics/transportation may increase geopolitics.
- North Korea is getting attention with talk of whether they are preparing for war.
Also recognize what the Group of
Seven, or G7, is saying and doing. You hear terms like “derisking” and
“economic coercion”.
Meanwhile, geopolitics continues to
elevate and escalate to become global. There is talk of a bipolar trade war. Can geopolitics lead
to supply chain diversification, even trade fracture? That would create unbelievable
supply chain chaos.
· Climate Change. This is serious and may last long. It has high risk. As
with the other major disruptor, geopolitics, it can affect how and where firms
do business. A difference is climate change is also domestic, not just global,
in its impact.
Reports of record global
temperatures. We see it with droughts that hit the Rhine and Mississippi Rivers, the Amazon Basin, and the Panama Canal. It also shows with the Arctic Circle
and record temperatures in place around the world, and flooding because warm
air can hold more moisture.
Significant CO2 emissions are in end-to-end supply chains. That puts
sustainability efforts front and center with supply chains--from suppliers
through to transportation. Greenhouse gas reduction and decarbonization reside
here.
Some say we are approaching a tipping
point in being able to mitigate climate change. This may increase regulatory
and other pressures.
· Logistics. Disorders have occurred within sectors
of logistics. These include:
o Labor strife/unions/contracts. There
have been work stoppages around the world. Ports. Transport carriers. Some of
it arises because logistics workers who worked frontline during the pandemic
want recognition with “hero” pay.
o The geopolitics with Russia with the
Black Sea and Europe and threats and shipping concerns because of military
games by China within the vital maritime route with the Taiwan Strait.
o Climate change. A frequently
occurring disruptor has been drought. The Panama Canal, for example, has had to
slow the fill of its locks and so restrict the flow of ships. In addition, the
Canal has limited how much weight they can carry. How serious the drought and
restrictions may have a significant impact on global trade and shipping. Add
IMO2030, the International Maritime Organization’s rules for the decarbonization
of ocean shipping. Compliance is shaping up as alternative fuels which may show
as additional costs for shippers.
· And. how disruptions have played and are
playing out in companies is important. Questions within firms include:
o Synergies to lower costs.
o Manage high costs and volatility.
o Difficult demand forecasting with all
the uncertainty.
o Changing consumer preference
o Materials shortages.
Supply Chains. Disruption is about your supply chain. It has differing
effects on companies. To deal with
change, you should know your end-to-end supply chain.
A cautionary note. What we are discussing is creating a
supply chain that can deal with ongoing disruption.
You should recognize that you are looking at:
P Change and risk.
P Doing something or standing still.
P Reacting vs strategy.
There are different takes on the inspection and introspection
to understand your supply chain as it is now.
· Questions. There are questions—or more
correctly, your answers-- for setting the starting point for what you will be
doing.
o
What
have you done and what are you doing about all this?
o
Do
you know how and where you fit in your customers’ supply chains?
o
Have
you had active conversations with key customers on what they are doing with the
continuous disruptions in their supply chains?
o
How
well do you comprehend supply chain management (SCM) and your supply chain?
§ Segments.
Supply chains have two parts—upstream/inbound and
downstream/outbound. Much of what has happened,
is happening, and will happen is with the upstream supply chain. A takeaway
from the pandemic is that you cannot fix downstream the problems that occur
upstream.
And keep in mind that the supply
chain is how you see it and how your customers see it. You are part of their upstream supply chain.
o
How
well. Ask yourself: how well do you
know your supply chain?
P End-to-end
P Its design
P How it performs
P Your metrics for it
P Use of technology
P The time in your operations and the
sub-sets
P Cost, of course.
o
Recognition. How well do you understand your supply chain
as to its:
ü Size
ü Complexity
ü Participants and players and
participants
ü Nonlinearity
ü Data
o
Its position. Every supply chain is different in what it
does, why, and how well. Do you comprehend your supply chain and the drill
downs of it as to:
o
Products
o
Markets
o
Channels
o
Lastly. Your introspection should ask:
o
Did
the pandemic expose weaknesses that were always there in your supply chain?
o
How
much of the three years of problems reflect a foundation of pushing for low
costs?
o
How
much supply chain cost can be reduced with improved supply chain performance as
compared to pursuing lower logistics and supplier costs?
How you respond to the above is important for what you have
to do to create a supply chain that can deal with continuous disruption. One
with Rolling Adaptability.
Rolling Adaptability and Approach. There is no simple solution for continuous disruption.
No magic bullet. No “the” answer is...
That said, what are you going to do with the economic shocks
and the effect in this Time of Supply Chain Disruption? Will you just ride out
each disruption? Will there be a crash and burn? Or will you have the ability
to adapt to each disturbance, especially ones that have extended duration? Even
more challenging, multiple disruptions at the same time. Rolling adaptability
to roll with the punches.
The Covid
pandemic had barely begun when the buzzword “resilience” arose. It gained
traction even if there was little specificity about what it meant or how to do
it. It has been used as some sort of magic word to explain positive happenings.
Firms are
facing more than an ability to bounce back from an event. They are facing one
happening after another. Sometimes multiple incidents at the same time.
Some view resilience as technology or cheap labor. My view is
that it is a one-time occurrence word.
Resiliency cannot handle an ongoing series of shockwaves. Even the occurrence
of multiple disruptions at a time. And some of them can be significant. Significant
and continuing chaos from different causes goes beyond resilience.
Past, present, and future disruptions show that more is
needed. And remember, supply chains drive global trade. They are the largest
and most important part of many companies, and their external reach is upstream
and downstream.
Supply Chain Disruption requires you to build a
new supply chain, especially with the threats of geopolitics and climate change.
One that responds to ongoing disturbances and risks. You need a hybrid with its
blend of design, strategy, operations, and technology. Include structure and
sustainability.
Many supply chains are built on cost, and it has been shown
during disturbances. They are slow and difficult to adjust. Supply chains
designed on performance bring flexibility and adaptability.
To develop and implement a supply chain that can adjust as
disturbances hit, you need an approach. Implicit and explicit is how you
recognize and deal with uncertainty and risk. Implicit too is the need to compress time in your supply chain. Extra and unnecessary time adds to your inability to respond to disruption.
With supply chains varying by company, industry, market,
channel, and geography, there is no one approach. What is presented here are features
that you should consider when creating the supply chain to handle the
disturbances, some of which will be significant.
The methodology to build a supply chain with rolling
adaptability is presented here. Key elements are:
1)
Map
and assess.
2)
Recognize
trends.
3)
Develop
a strategy.
4)
Make
structural change.
1)
Map and assess.
As discussed earlier, it is important to know your supply chain. One step to doing it is to map and then
assess your operations, assets,
inventory, and players/participants. These different takes will prove insightful
in building needed flexibility and prioritizing what must be done first. Get
granularity. This will keep you from being distracted by less important areas.
Mapping enables you to see your
supply chain and its process, size, complexity, and nonlinearity. This is your network. You also realize gaps
and redundancies that occur because of all the activities and participants,
both internal and external to your company.
From this, you can evaluate how to
mitigate risk and where, what, and how to change or not, aka, the reluctance to
change. You are gaining visibility to your real supply chain.
o
Operations. What
you are mapping is your supply chain process. The more you know your supply chain, the better you can identify risk and create the needed supply chain to mitigate it.
Four years have been primarily about the operations of the
upstream / inbound supply chain. Manufacturers and suppliers lock downs. High
maritime shipping rates. Port congestion. Rail congestion and equipment
shortages. High demand for warehouse space. And more. These were hard lessons
learned. Serious issues and annoying one.