How large organizations adapt

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In Part 1 of this series, we discussed the supply chain processes and technologies that helped companies weather the wave of globalization at the end of the 20th century. The supply chain has certainly been disrupted in the past, but today it is more complex than it has ever been. In fact, it is more of a web or network than a channel. Business networks stretch halfway around the world, and while impressively efficient, they have proven fragile in the face of disruption. These disturbances are numerous; Russia’s invasion of Ukraine, Covid shutdowns in China (a country most businesses rely on at least indirectly), widespread logistical constraints and capacity issues. We find that no supply chain event is isolated and that disruptions can pose serious existential risks (e.g. formula shortages).

Experts don’t seem to agree on when the supply chain will balance out, but they do agree that companies can no longer afford to make predictions; all they can foresee is the unpredictable. Planning for the unpredictable involves developing new capacities for resilience (to better anticipate and recover from adverse events) and agility (to act quickly not only to avoid risks, but also to seize opportunities and transform in the process). These include:

  • Redefine performance indicators. Too many organizations have misaligned or even non-existent “metrics,” often focused on accounting costs or spend management (rather than supply management). Very mature organizations now focus more on economic costs or assumptions that have ripple effects on their supply continuity and bottom line. After all, expenses are what you pay for, but supply is what you get, and both should be on a “balanced scorecard.” Metrics are what tell you if your supply is available, sustainable, ethical, high quality, and timely enough to truly be considered “profitable” from a true total cost of service perspective. This may involve keeping a better eye on customer feedback, regulatory issues, labor conditions, natural disasters, logistical barriers, geopolitical complications, and other factors that impact performance. Additionally, companies should differentiate the types of risk they measure (e.g. supply risk, capacity risk, supplier risk, IT risk, intellectual property risk, business risk) in order to take into account risk scores in sourcing decisions and supply chain strategy choices. Essentially, performance metrics should be future-oriented and should not just focus on the “costs of doing business”. As Pierre Mitchell put it, “procurement risk management done right is more than just a glorified insurance policy applied to the supply chain.”
  • Make better choices at design time. Industry experts call it “design for sourcing, and there are already organizations (like Tesla) pioneering these practices and technologies who provide the intelligence to make it possible. It makes sense that engineers often reuse BOMs for new designs, especially if they’re using parts that are readily available and used in many supply chain products – but parts are not always readily available. Over the past two years, buyers have been forced to make expensive one-time purchases (with expedited shipping at record shipping costs) and reconfigure their supplier networks to meet demand. Thus, organizations open the door and make design decisions that are “outside-in” rather than “inside-out” so that product design, or manufacturing specifications , can actually be achieved with the current capacities of the supply network. Sophisticated engineers work cross-functionally, thinking about the availability, timelines and alternatives of every part that goes into their design. They examine the ability of suppliers and relief providers to manage geopolitical disruptions and increase supply in times of volatility. We are moving beyond the days of designing products with custom chips or parts that are only made by a handful of constrained (and powerful) manufacturers. Essentially, companies are breaking down silos and improving their overall visibility throughout the design lifecycle from source design so they can quickly pivot when plans fail.
  • Although everyone has a budget and can be under pressure to focus on short-term wins rather than long-term wins, companies recognize that they are more competitive and more valuable as a brand when they innovate. Many supply chain innovations are widely discussed even by the general public (i.e. ESG– related initiatives, anti-fraud initiatives through block chain), but what often goes unnoticed is the innovation that happens in collaboration with suppliers. For example, Apple is an innovator because it works with vendors to develop (and protect!) innovative intellectual property in terms of product features and internal capabilities. This type of collaboration with suppliers must be built into the design-to-procurement process for innovation to be realized throughout the NPDI process. When an entire supplier ecosystem innovates together and aligns its goals, those goals are much easier to achieve (i.e. sustainability, circularity, diversity, transparency, localization).
  • Optimize their trade-offs between effectiveness and efficiency. Efficient systems such as JIT can minimize costs, but they lack buffers in the event of disruptions, ultimately leading to higher costs and lost revenue for disappointed customers. Companies do not completely throw away their individual systems, but rather enhance their systems (e.g., with external intelligence) and integrate them to break down information silos, because it is impossible to manage an integrated supply chain with data not integrated. They “design for sourcing” by reducing product/specification complexity, offshoring, reducing lead times, diversifying their supplier base, vertically integrating into strategic categories, relocating/resizing buffers and, overall, a better balance between strategic supply chain efficiency and tactical operational efficiency.
  • Adopting AI technology. AI helps automate repetitive, high-volume processes like procurement execution, but the biggest impact is in turbocharged analytics to help sift through big data. Truly strategic sourcing is about “identifying opportunities” and the bigger the opportunity the better. prescriptive. This allows analysts and managers to not only better orchestrate internal workflow processes, but also to see the bigger picture allowing them to take the right course of action, rather than the status quo course of action, with more efficiency. , people and tools, it is next-generation supply chain technology and analytics that will drive value within the global supply chain.

Speaking of supply chain technology, it is evolving faster than it is being adopted. In Part 3, we’ll discuss the future of our global supply chains and how technology (and its adoption) will radically transform the way we respond to disruptions of any kind.

This article from the Spend Matters brand studio was written with SupplyFrame

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