How Can You Build a Resilient Supply Chain That Withstands Future Disruptions?

Why Is Your Lean Supply Chain Strategy Failing in a Volatile Global Economy?

Build resilient supply chains that withstand global shocks. Learn five expert principles to pivot from cost-cutting to agility, cutting-edge technology, and sustainability. Start building a future-proof business today—read the full article to implement these five resilience strategies and turn potential disruptions into competitive advantages.

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Companies have spent decades striving for lean supply chains and cutting supply chain costs. But the COVID-19 pandemic, wars, and natural disasters led to shortages of products, parts, and raw materials. This demonstrated that cost-cutting is risky in a volatile environment of geopolitical tensions, social unrest, and extreme weather. Global management consultants Suketu Gandhi, Marc Lakner, Sherri He, Tiffany Hickerson, and Michael F. Strohmer explain that businesses should build resilient, flexible supply chains. They outline a comprehensive program for cultivating a supply operation that can adapt to sudden shocks and continue to thrive, whatever the world throws at them.

Take-Aways

• The supply shocks of the early 2020s illustrate the need for supply-chain resilience.
• Prepare your operations for a range of potential threats.
• Make your suppliers your partners.
• Position customer value as the linchpin of your supply operations strategy.
• Cultivate a resilient workforce.
• Revolutionize your supply chain with cutting-edge technology.
• A sustainability strategy is fundamental to resilience.
• Any future scenario demands resilience.

Summary

The supply shocks of the early 2020s illustrate the need for supply-chain resilience.

For decades, many companies made cost-cutting a primary component of their supply-chain strategy. Among other steps, that involved outsourcing manufacturing to countries with low labor costs. This strategy can be effective in a stable business environment, and many companies bet that relative stability would persist into the future.

“One way to build resilience against the next supply shock is to restructure your brittle supply chains so that they bend instead of breaking.”

These businesses proved unprepared for an avalanche of destabilizing events, including the COVID-19 pandemic, labor shortfalls, geopolitical crises, and natural disasters. All these disruptions confirmed that business leaders must make sure their operations are resilient and sufficiently adaptable to cope with a chaotic world.

Prepare your operations for a range of potential threats.

In today’s VUCA (volatile, uncertain, complex, and ambiguous) environment, business survival requires a holistic view of corporate operations. Your supply chain should be one component of a value chain that includes product planning, consumer research, manufacturing, logistics, and more.

“We are experiencing the biggest remaking of the global economy since the end of World War II.”

Watch for indicators of change that could affect any stage of your operations, and quickly modify your strategy to contend with new circumstances. The strategic choices you make now will help you build resilient operations. Start with your relationship with your suppliers.

Make your suppliers your partners.

Work with your suppliers to establish a relationship that benefits everyone. Rather than concentrating on exacting price concessions from them, refine shared strategies that strengthen both your company and your suppliers. Forging this relationship should involve communication among the leaders of all participating organizations.

Share your goals with your suppliers, and discuss how their work aligns with those goals. When suppliers understand the role they’re playing in your overall process, they might offer suggestions on design issues that could reduce costs or better serve your customers. You also may suggest improvements to their operations that could help them meet a larger production goal. Encourage your suppliers to cultivate similar relationships with their suppliers in order to build a network capable of providing early warnings about supply interruptions.

To avoid supply shortages, reduce your dependence on a single source for any item. Seek out quality alternative suppliers as backups. To facilitate the use of multiple sources, arrive at design decisions that make your product easier to obtain by using specifications several suppliers can meet.

“Your suppliers are a source of value, and you need to maximize that value, not minimize the cost.”

Ensure that people in every part of your company understand the entire value chain, instead of concentrating only on their portion of it. For example, if the procurement department is considering purchasing a new type of material, it should seek input about that decision from research, development, manufacturing, and any other departments that will be affected.

Position customer value as the linchpin of your supply operations strategy.

Fast-fashion companies exemplify how an operation’s design can disrupt an industry. Traditionally, the fashion industry structures its operations around a 24-month season, beginning when designers reveal their new styles. Fashion houses then spend months hyping their new looks through runway shows and press coverage. Over time, styles migrate from the high-fashion realm to retail stores.

Fast-fashion companies, such as Zara and H&M, upended this model by focusing their operations on their customers rather than following the fashion design industry’s calendar. When high-end fashion houses hype new designs, Zara, H&M, and their competitors quickly make and sell knockoffs. They release new products continually, satisfying their customers’ desire for novelty.

“Those capable of rewriting the rules of assortment, allocation, pricing, promotion, and fulfillment will be better able to adapt to whatever the future holds.”

To implement this strategy, the fast-fashion companies replaced their cost-conscious globalized supply chains with quick-response operations. For example, instead of outsourcing sewing work to low-cost labor in Asia, Zara prioritized speed and decided to use workers based near its headquarters.

Every industry faces the potential for similar disruptions and should adopt a design-to-value approach that gives it the agility to respond to changes in customers’ attitudes. This approach pleases customers and effectively tackles several interrelated issues – including cost, sustainability, and shifting supply-demand profiles.

To cultivate resilience, simplify your product portfolio. An overly broad range of products and features creates complexity that increases expenditures and risks. To modify your portfolio productively, work to understand your customers’ needs and desires, and then make your decisions accordingly. Set up periodic sessions to gather feedback from those who use your products. Analyze their responses to find themes and patterns, such as demographic or regional differences. Use data analytics technology to gather a wider sampling of customer preferences.

“Complexity can be both expensive and fragile.”

The growth in e-commerce gives you new opportunities for delivering your products to your customers. One option is reshoring – relocating sourcing and manufacturing closer to your market. This can lead to faster deliveries, but companies should remain aware that customers may not be concerned about quick delivery for every product.

During the COVID pandemic, many companies experimented with a multichannel approach. For example, the pandemic devastated the business of a Wyoming lettuce grower that usually sold its crop to restaurants and schools. It responded by marketing to grocery stores and emerged from the pandemic with a wider customer base than it had previously. Other companies experimented with online sales and home delivery.

To set up an omnichannel operation, gather and analyze relevant data, such as the location of your customers, your warehouse, and distribution centers. Determine if you have the technological infrastructure to handle new channels. Consider your last-mile options, including whether to offer delivery or customer pickups.

Cultivate a resilient workforce.

Great teams arise from great cultures. A great culture values diversity, appreciates employees’ contributions, and inspires a sense of purpose. Listen to your employees’ concerns. Show that their viewpoints matter. Encourage an open culture that can help you gain insight into potential problems.

Offer your teams a vision that fires up their motivation, with a goal that’s more meaningful than boosting share prices. When team members work toward a goal that benefits society and aligns with their personal values, they find joy in their endeavors. Joyful workers strive harder to meet challenges and are more likely to thrive in a fast-changing environment.

Companies today accept that a workforce of people from disparate backgrounds with unique perspectives will produce more original ideas. However, nurturing a diverse workforce involves more than just hiring people from multiple backgrounds. Recruit people with unusual backgrounds or experiences that complement your staff’s current skills, and deploy them in a way that emphasizes their strengths.

“As any farmer can tell you, homogeneity breeds vulnerability.”

Your employees’ skills give you a foundation for building a more resilient supply chain. Instead of focusing on cutting costs by leveraging economies of scale, consider building resilience through “economies of skill.” This involves four strategies:

1. Institute outcome-based work – Pay for results rather than time. When you reward outcomes, workers increase their skill levels to become more efficient and garner more rewards.
2. Leverage global expertise – Rather than hire a different overseer for each of your global sites, hire one global operations expert to supervise the entire network. This person can use online tools to consult with managers around the world and can occasionally fly to trouble spots.
3. Promote perennial learning – When you encourage and enable employees to learn new skills and burnish existing ones, you are making your organization more adaptable and resilient.
4. Plan for the skills of the future – Determine which skills will be necessary for your company’s success in the future, and create plans for developing them.​​​​

Revolutionize your supply chain with cutting-edge technology.

Technology can monitor operations throughout your value chain, from the inventory of raw materials to changes in customer behavior. Using the Internet of Things, install sensors in warehouses, pallets, and products that can alert you if anything goes wrong. Combined with machine learning and artificial intelligence technology, these sensors can predict breakdowns and other problems.

“Supply chains are likely to follow other sectors of the economy in massive digitization.”

Advanced robotics could relieve human workers of routine and repetitive tasks, enabling your people to focus on issues that require human judgment. Put the Internet of Things to work on processes such as scheduling and enterprise planning. With AI capability, you can quickly analyze and react to customer behavior. Wearable tech could streamline training, boost productivity, and enhance safety. Use 3D printers for customizing and creating low-volume parts.

“Learning organizations are resilient: They see crises as opportunities to grow, on both the individual and corporate levels.”

Apply a mix of artificial and human intelligence to foster a culture of continual learning. Such a culture will give your workers the agility and know-how to handle crises, pivot in response to shifts in customer preferences, and make the most of innovations.

A sustainability strategy is fundamental to resilience.

All your stakeholders have become increasingly aware of environmental, social, and governance (ESG) issues. Customers understand how the products they buy affect the global environment and workers’ well-being. This knowledge makes customers increasingly willing to pay more for sustainable products.

Employees worry about how their activities will affect future generations. They prefer to work for companies with sustainable practices. Certain funders and investors demand that business plans outline a strategy and timetable for reducing carbon emissions to net zero. Companies understand that the environmental consequences of unsustainable practices – including floods, wildfires, and hurricanes – can be costly.

“Many potential ‘supply shocks’ could be better classified as environmental, social, and governance (ESG) risks.”

Sustainability is no longer a purely political concern. Embrace it for strategic advantage. For example, you can frame sustainability as one way of minimizing waste.

Consider product design as an aspect of your sustainability effort. From 2015 to 2020, products marketed as sustainable powered nearly half of the growth in consumer goods. Embracing sustainability can initiate a circular economy – one in which the raw materials from old products are recycled as resources for future products.

Any future scenario demands resilience.

Extrapolating from current conditions, imagine possible futures. In one scenario, the world may return to the state it was in before the COVID pandemic, with sufficient resources and a manageable rate of volatility. Or, today’s trends could lead to a future of economic turmoil, social unrest, war, an increase in severe weather events, and a scarcity of resources.

“Resilience is the ability to withstand risks.”

Several elements of resilience are essential in facing future challenges:

• Transparency – Make sure you have a full view of your operations throughout the entire value chain.
• Data – Acquiring, sharing, and analyzing data helps you maintain transparency, better understand your customers, and make wise investments.
• Customer value – Value for customers can take the form of sustainability and a more agile supply chain.
• A proactive attitude – Don’t wait for change. Continually question everything about your products (how you source them, how you make them, and how your customers use them), and be ready to pivot.
• People – Make sure you have the right people on the job, and empower them with purpose.

About the Authors

The authors are with A.T. Kearney, where Suketu Gandhi is a global co-leader of the strategic operations practice. Marc Lakner is managing director for Germany, Austria, and Switzerland. Sherri He is managing director of the Greater China unit. Tiffany Hickerson is a partner in the strategic operations practice, where Michael F. Strohmer is the global co-leader. He is also the leader for procurement.