Insights

Resilience is the New Name of the Game in Supply Chain Management

July 16, 2020

For decades, efficiency has been the key consideration when setting global Supply Chain strategy. In the wake of COVID-19, organizations are shifting the focus to Supply Chain resilience.

As everyone in Supply Chain Management knows today, the field has come a long way. It’s something we’ve written about a lot on the Argentus Blog. The function – which used to be a back-office, administrative task – has evolved to become a major seat of strategic profitability and brand within companies.

For the majority of Supply Chain’s history, this evolution has been driven by a knack for finding efficiency. Companies have leveraged digital tools, and evolving skills, to collect vast data about product or raw materials sourcing, transportation, logistics, and manufacturing. They’ve hired strategic Supply Chain professionals who can turn this data into actionable intelligence, and redesign the supplier, production, and transportation network to get products to market quicker and cheaper. They use advanced ERP software and S&OP strategy to match supply with demand, and turn over inventory faster and faster. “Just-in-time” production has become a hallmark of today’s Supply Chains.

Case in point: research firm Gartner includes the speed of inventory turns as a key metric in its annual Top 25 List recognizing companies for their excellence in Supply Chain.

Now, the top Supply Chain professionals are those who can find those efficiencies, while providing a strong customer experience that safeguards the company’s brand. It’s been a long evolution, and it’s made the field more ascendant within companies than it’s ever been, with a bigger seat at the C-suite table. Risk mitigation, innovation through supplier collaboration, and increased sustainability have also driven Supply Chain’s strategic value – but they’ve taken a back seat to efficiency.

Then came COVID-19.

As we’ve also written about recently, the COVID-19 pandemic has caused almost-unprecedented disruptions to a majority of companies’ Supply Chains – as many as 72%, according to a recent Supply Chain Canada survey.

We’re four months into the pandemic, and it appears that these disruptions have spurred another evolution:

More than ever, companies are focusing on Supply Chain resilience.

All around the Supply Chain world, professionals are shifting their focus to make sure that they can withstand supplier disruptions, not only due to COVID-19, but to future emerging issues as well.

In our recent interview with Procurement Guru Jill Button about the particular Supply Chain challenges of the moment, she highlighted this shift, saying: “People are beginning to understand the risks and fragility of a Supply Chain and not having a sound Procurement practice. I think, as a field, we need to step up and embrace this moment.” In March, at the outset of the pandemic, industry thought leader Bob Ferrari wrote about how, in a world of supplier disruption, companies might shift from a just-in-time inventory model that maximizes efficiency, to one that prioritizes a diverse supplier base to maximize resilience.

Top consulting firms are taking notice too, in their own advice to corporate leaders: Bain, Deloitte, McKinsie, and Baker McKenzie, and others have released white papers in recent days on the importance of Supply Chain resiliency and risk mitigation in this new era.

For our money, one of the best new explorations of this topic comes in a great new article in Harvard Business Review, titled, “Why Investing in Procurement Makes Organizations More Resilient.” Written by Rafel Ramirez, an Oxford business professor, and his partners at consultancy NormanPartners, the article dives into how up-skilling Procurement organizations to become more strategic can build overall Supply Chain resilience.

The authors paint a picture of Supply Chain as-it-was, with a relentless focus on efficiency, and a close alignment between the arrival of supply and production scheduling to minimize inventory and costs, even if it leaves companies in a precarious position in times of disruption. In their words, “To survive in times of crisis and thrive over the long term, firms will have to shift their strategic thinking from just-in-time to just-in-case.”

To accomplish this, they advocate for an updated view of Procurement as a function within Supply Chains – one in which Procurement brings about constellations of value for a variety of stakeholders, instead of seeking only to maximize value along the chain of production. In other words, rather than just squeezing suppliers to minimize costs, Procurement design networks between suppliers and buyers that provide mutual, long-term value and support through times of disruption.

Through case studies from Rolls Royce and the European Patent Office, the authors dive into some key principles behind this realignment in thinking:

  • Purchases are never a given, whether they’re goods or services. They must always result from a strategic decision.
  • We use “Supply Chains” as a visual metaphor for how value is created between suppliers, buyers and end customers, but this value doesn’t necessarily accrue in a linear order. Instead, many actors interact at once to provide value to each-other.
  • Long-term business relationships between suppliers and companies are inherently more resilient than purely transactional relationships.
  • Companies should work to provide value to suppliers, through new models and offerings, rather than simply squeezing them for costs.
  • The competencies required to bring about this new model can be bigger than redesigning RFPs or the Procurement process. Creating a more resilient network can require the ability to create new services, manage assets long-term, and innovate beyond the narrow scope that Procurement used to have.

These are some of the more interesting takeaways, among many others.

For some in Procurement, this approach isn’t exactly news. The most strategic Procurement professionals have been speaking about providing holistic value beyond cost savings for years.

But in the post-COVID-19 world, with its renewed focus on resilience, it looks like more organizations might be listening.

Of course, efficiency will always remain a paramount driver of Supply Chain Management’s value. But what do you think? Is your organization focusing more on Supply Chain resilience? What strategic approaches are you taking, and what benefits are you seeing? Let us know in the comments – and in the mean time, check out the great article from HBR which dives into the case studies.

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