To survive and thrive, organizations must balance efficiency with adaptability, flexibility, and effectiveness. The ongoing COVID-19 pandemic and the resulting economic downturn have challenged organizations to re-evaluate their ideas about how to optimize the supply chain. Rather than focusing solely on cost and market share, organizations must now consider how to address risk and meet strategic goals while achieving efficiency.
This responsibility falls primarily on supply chain planners, who must consider the need to keep logistics modes flexible, quickly react to unforeseen high-impact events, and pivot to address shifts in demand. I wrote about this recently in APQC’s new Supply Chain Planning: Blueprint for Success.
Being able to balance these needs is essential to building the supply chain of the future. Organizations leading the way in supply chain planning exhibit key behaviors that drive their superior performance and make them well suited for both weathering the current uncertainty and emerging from it positioned for success.
These organizations keep themselves flexible to react quickly to unanticipated interruptions, yet they also plan for the future by ensuring that they can support both existing and future business models. They are also increasing their analytical maturity so that they can use data in both a predictive and prescriptive manner. Additionally, they track trends in emerging technology to keep supporting business strategies and goals. As organizations position themselves to develop the supply chain of the future, they would do well to adopt the practices of the organizations leading the way.
Balance Efficiency with Risk
APQC’s research indicates that leading organizations exhibit adaptability by reconsidering how they decide on supply chain strategies. Traditional supply chain wisdom states that organizations should focus on efficiency to control costs. However, to achieve stability and guard against unanticipated events, organizations must balance the need to control costs with the need to mitigate risk.
The disruption caused by the COVID-19 pandemic has revealed the vulnerabilities of organizations that made their supply chains as lean as possible, particularly from an inventory perspective. Planning with risk in mind enables organizations to quickly adapt to unanticipated shifts in demand and position themselves to thrive once things stabilize.
APQC recommends that supply chain planning decisions aimed at efficiency also consider the full range of possible risks to the business. This includes high-probability, low-impact events as well as low-probability, disastrous events. As part of this, organizations should build scenarios and compile risk profiles of key business partners to provide a complete picture of the impact of an event. However, APQC’s research reveals that one-third of organizations do not use an electronic system that provides risk profiles of their suppliers, materials, supplier manufacturing sites, categories, or products. Such a system provides a robust picture of threats to the business and allows an organization to assess the impact of various types of disruptions. Not having systems for risk profiles can leave organizations vulnerable and slower to react to unforeseen disruptions.
Align with Organizational Strategy
For supply chains to remain successful, they must maintain the flexibility to adjust based on organizational strategy, as well as adapt to external changes. APQC recommends that all partners within the supply chain understand the organization’s strategic priorities. Planners should establish communication channels to convey strategic shifts such as new products, changed business models, new partnerships, and any disruptions in supply or demand.
APQC has found variation in the extent to which supply chains are capable of supporting existing and future business models. For about 20 percent of organizations, this capability is limited. Organizations successful in supporting current and future business models have lower supply chain planning costs, shorter customer order cycle times, and faster cash-to-cash cycle times – powerful motivators for increasing strategic alignment. In addition to these strengths, organizations with strategic alignment also can quickly pivot when responding to changes in the market.
Develop Decision-Making Maturity
Another practice necessary for organizations to be future-ready is developing their use of analytics. In supply chain, analytics can provide valuable information needed for forecasting logistics and inventory optimization, as well as scenario planning. All of these capabilities enable organizations to increase the effectiveness of supply chain planning. In fact, supply chain managers that rely more on data are three times more likely to report significant improvements in decision making, compared with those who make decisions based on intuition.
The main goal for developing analytical maturity is to digitize transactions in every supply chain process so that decision makers and planners have complete visibility into the supply chain’s performance. Organizations vary in the degree to which they support decision making with advanced analytics. Most organizations use advanced analytics and predictive algorithms to support decision making (73 percent). However, a quarter of organizations still use analysis of past actions and consequences to support their decisions. Without a more data-driven approach, those organizations will be unable to anticipate changes that are not expressed in historical patterns, making them exceptionally vulnerable to unprecedented events such as the COVID-19 pandemic.
Re-Evaluate Emerging Technologies
APQC finds that leading organizations keep an eye on emerging technologies to ensure continued efficiency and effectiveness in their planning. In a survey of priorities for 2020, APQC found that almost all the trends organizations expect to impact supply chains by 2023 involve technology or technology-enabling process standardization.
Currently, organizations are most focused on digitization of the supply chain, followed in order by analytics, cloud capabilities, process standardization, AI/cognitive computing, mobile technology, robotic process automation, and blockchain. However, the primary concern for supply chain organizations should be meeting business needs rather than implementing technology for the sake of implementing a technology.
Using advanced technology such as predictive analytics does have its benefits. APQC has found that organizations that have adopted predictive analytics to a significant or very great extent outperform others on cash-to-cash cycle time by 8 days. These organizations also reduce supply chain management costs as a percentage of revenue.
Improve for the Future
The COVID-19 pandemic and global disruption have shown that the way organizations think about supply chain has fundamentally changed. To be the supply chain of the future, which can meet the ever-changing needs created by the new business climate, organizations must embody adaptability, flexibility, effectiveness, and efficiency. It is no longer enough to be focused on the lowest cost as the primary method of ensuring an organization’s survival.
APQC recommends that organizations position the supply chain to anticipate and navigate unexpected storms while also improving for the future. This involves much more than what has worked in the past; organizations must actively assess risk, align planning efforts with organizational strategy, develop decision-making maturity, and re-evaluate emerging technologies for supply chain planning use.
To continue the conversation, follow Marisa on Twitter at @MB_APQC or connect with her on LinkedIn.
For more information, APQC members can download Supply Chain Planning: Blueprint for Success. Everyone (regardless of membership status) can download the Supply Chain Planning: Blueprint for Success Executive Summary.