CLAREMONT, CA—The COVID-19 pandemic has proven the critical nature of the strategic supply chain, according to expert supply chain thought leaders within the Society for the Advancement of Consulting® (SAC). Companies realize they can no longer ignore this crucial business function, which belongs firmly in the C-Suite. This includes the thinking, actions, and initiatives that put the supply chain in a strategic context.

Inventory Accommodation or Optimization?

“As a manufacturer, do you have an inventory accommodation strategy or an inventory optimization strategy?” asks Patrick Daly, Managing Director of Alba Consulting, based in Dublin, Ireland. “In my work with manufacturing clients, I often find that they do not have any explicitly articulated strategy at all.”

“Frequently, there is no feedback loop between infrastructure provision to accommodate inventory, and setting the policies that determine how much inventory the company holds to support manufacturing operations,” explains Daly. “Consequently, companies end up engaging in contradictory and counterproductive initiatives in different silos within the business.

“Under pressure from excess inventories, operational managers will lobby for increased capital expenditure approvals or the expansion of spending on warehousing with third party logistics service providers,” he says. “Meanwhile, policies related to materials on hand, dual supply, supplier location and lead time, and minimum order quantities, are set or agreed upon without reference to the inventory accommodation consequences. The best results are achieved by explicitly tying these two strands together systemically with a coherent strategy.”

Boardroom Involvement Gaining Ground

“Executives are quickly realizing that the end-to-end supply chain must be elevated to a strategic topic in the boardroom,” points out Lisa Anderson, president of Claremont, CA-based LMA Consulting Group, Inc. and a manufacturing expert known for creating supply chain resiliency. “Many companies were caught off guard during the pandemic with limited resiliency, highlighting this issue.”

“Reshoring is on the rise. Collaboration with United States-Mexico-Canada Agreement (USMCA) partners is increasing,” notes Anderson. “Executives are no longer just considering their options, they’re taking actions to take control. As options are evaluated, it’s becoming clear that the supply chain is larger than any single topic such as sourcing, logistics, or planning.

“Taking a strategic view of how to grow the business in a profitable and scalable way, while navigating changing customer conditions, dictates a new level of respect for the strategic supply chain in the boardroom.”

New Supply Chain Strategies – Blink and You’ll Miss It

“In what seemed like the blink of an eye, our marketplace changed.” according to Diane L. Garcia of Lorraine Consulting, LLC, an expert in helping clients improve their unique supply chain processes.

“Our supply chains and technological capabilities shifted in new directions,” says Garcia. “We now live in a world where goods and services arrive the same day after only a few clicks on a phone. Amazon is not the only name in the game. More and more companies are offering direct delivery through easy-to-use ecommerce interfaces.”

“No longer can supply chain execution take a backseat,” she adds. “The organizations who understand what their strategic supply chain is up against will advance in an ever-changing marketplace.”

Investors Thrusting Climate Risks onto Supply Chain Agenda

“Investors are now asking for companies to provide assessments of environmental risk to the business. A firm’s supply chain is a critical piece of the TCFD (Task-Force on Climate Related Financial Decisions) puzzle,” points out Mark D. Wolf, president of US-based LavaFish Advisors, and a sustainability expert known for creating scenario analyses using internal expertise.

“Executives who understand, assess, and plan for climate related risks in their supply chain can play a strategic part in driving revenue, growing profitability, and maintaining the social license to operate,” says Wolf.

“At a minimum, companies must know the carbon emissions from their supply chain. Accountability for carbon is required by investors. The regenerative economy is becoming key for many,” he adds.

Four in Five Executives Now Rethinking Supply Chain Strategy

The COVID pandemic has illustrated just how extensive and overly complicated many supply chains became says Art Koch, President of Arthur Koch Management Consulting, LLC. “Depending on the survey, 76% to 84% of executives and board members are rethinking their manufacturing footprint and supply chain strategies to emphasize the importance of flexibility and responsiveness. They identified the necessity to compress lead-times by reshoring and insourcing operation-critical parts to regain control of their supply chains.”

“As we exited 2020, the Institute of Supply Management’s Purchasing Managers Index increased for the sixth straight month,” Koch notes. “Those figures indicate confidence. Our economic cycle has shifted toward growth and it’s at the highest level since August 2018.”

“The buoyant Purchasing Managers Index brings hope for ongoing expansion in the North American Industrial sector,” he adds. “Astute executives are preparing for the next wave of expansion. They’re transforming ‘problem chains’ into profit chains by investing in supply chain professionals, compressing lead-time, and reducing the total cost of ownership.”

Future-Proof Companies Use an Old Strategic Weapon

“An efficient and effective Supply Chain has always been a strategic weapon. It can provide a significant competitive advantage over the competition,” explains David Ogilvie of David Ogilvie Consulting, a business transformation consulting firm based in Brisbane, Australia. “Recent events have simply highlighted its importance to those who had lost sight of its strategic value.”

Sound strategy sets the tone of the organization of the future says Ogilvie. “It sets up what the company will look, smell, and taste like in the future. There’s nothing more strategic than profitable growth and nothing more important than creating and keeping customers happy. And there’s nothing more crucial to keeping customers happy than an effective and resilient supply chain. Boards and senior executives need to rediscover the strategic importance of their supply chain if they want to successfully manage in turbulent times.”

Intelligent Design Avoids Fatal Trap of Evolution

“Two theories prevail about the origin of man: the theory of evolution and the concept of intelligent design. The same parallel exists for supply chains,” explains Antonio Zrilić, managing director of LOGIKO CONSULTING, based in Zagreb, Croatia. “A characteristic feature of the theory of evolution is that it takes billions of years for everything to work out well. That’s without events that wipe out life. Those events include cataclysms (crises and recessions) and predators (competition). Companies don’t have billions of years to evolve. They have months or, at best, years.”

“My preferred theory is intelligent design,” advises Zrilić. “This includes experience, knowledge, and predictions. It also includes the smart design of the facilities, organization, and processes.”

“Giving in to evolution or limiting themselves to the way things have been down for years, many companies end up with the equivalent of an evolutionary appendix,” he says. “It exists because it was there, but has no known use now. At best, they don’t use their full potential. At worst, they don’t live a long and successful life.”

Supply Chain Flexibility Facing Unparalleled Challenges

“The number one thing that business and industry has learned over the past year, from the C-suite to front line workers, is the importance of flexibility in the supply chain,” says Elizabeth Warren, Global Logistics Specialist and president & CEO of Dialed-In Partners, a consulting firm based in Los Angeles that focuses on public policy issues in the goods movement industry.

“Flexibility has long been a topic of discussion,” notes Warren, “And most businesses believed they had an adequate contingency plan for unforeseen emergencies.

“The impacts of the pandemic have created a need for flexibility that is unparalleled in duration and scope,” she says. “This is affecting every segment of the supply chain on an absolute global basis. Companies have realized that to be truly resilient with the ability to pivot their business during any disruption, their supply chain strategy must be a core principle in their overall strategic plan.”

The Big Switch in Spending has Big Consequences

“If you need any reminder as to why your supply chain is key to your strategy, just completely disrupt it and see what happens,” according to Evan Bulmer, Director of EBAA, a consulting firm based in Adelaide, Australia. “Nothing like a good pandemic to demonstrate this.”

“As the world economy is restricted from buying services—think travel, restaurants, entertainment—we are spending our money on goods, including luxury goods,” Bulmer explains. “With such a stark change in market conditions, understanding both the supply chain and your customer demand is critical. This will allow you to be in the best position to take advantage of these market conditions. There is, of course, a lot of money to be made by those who get their supply and demand priced correctly.”


Originally posted on SAC website: March 1, 2021