Supply Chain Enters The Boardroom

Supply chain has firmly entered board rooms and C-suite discussions. This trend started in the “before” world, yet was accelerated by the pandemic demand shifts and ensuing supply uncertainties. Add the geopolitical issues, and we are looking at major strategic and bottom line impact.

If you are a board member or in the C-suite, yet supply chain is not “your thing”, where should you begin and which questions should you ask to create the best outcomes?

Distance has become the enemy

Distance became the enemy because of Covid-related constraints and the trade wars.

• Transportation. As I write this, I have a personal shipment stuck in Paris. The courier service has exceeded capacity from Europe to the US. Kind of ironic as I have been talking about freight issues for the last seven months. During the height of the pandemic, freight prices increased to 4-5 times the “before” rates on certain routes. At 8% of the GDP and growing, freight costs are not trivial. Yet, the biggest issue is frankly the risk of delays that can impact or destroy Q4 and future results.
• Border crossing. Each time a product crosses a border, it needs to get out of one country and into another. With trade wars and added Covid containment measures, both of those transactions have become more complex; they are often more regulated, and regulations more strictly enforced. Risk of having product stuck or subject to surprise tariffs or duties has gone up.
• Sustainability. It is simple math: Longer distance means more carbon footprint.

When looking at distance in your supply chain, remember to consider the entire journey from raw materials to finished goods to end-user receipt.

The questions to ask are: If we shorten the supply chain, how does it compare to our current supply chain when it comes to cost, timing, footprint and risk? What is our risk analysis for being able to deliver our products/services where and how the customer wants them?

Governance

Governance of suppliers has become critical as on-site visits by your own staff may be out of the question. One can rely on 3^rd party auditors, but even some of those auditors have thrown their hands up and now refuse audits in certain parts of the world. This can impact quality and integrity of the product as well as jeopardize social responsibility – from child labor, forced labor, labor abuses to unsafe working conditions. Consumer trust is based on your compliance, and it includes not just internal compliance but also your supply chain partners.

The question to ask is: How do we control and verify what is going on with our suppliers – from staying in business, to quality, to compliance with social corporate responsibility goals?

Visibility and accelerated decision making

Agility – the ability to react fast to changing circumstances – is a key success parameter, given the demand fluctuations. Whole visibility tools are improving, is your supply chain focused on visibility that helps predict the future? Predictive analysis is still in its early infancy. Some might even say it has not been born! We are still relying on incomplete data and often only rear-view visibility and on intuition. It is worth considering whether planning tools are helping or hindering your agility.

The questions to ask are: Which data are we relying on? Is it the right data that truly helps us? Which data is “old school” that we need to abandon? How can we make better decisions much faster?

Strategy

Supply chain strategy has become a life-or-death decision for many companies, and the considerations are too many to list, ranging from channels, returns and other customer-facing decisions to supplier and company internal decisions.

• Risk based thinking must be part of the strategy; the best-in-class will figure out a way to quantify the risk such that it can be included in cost comparisons.
• Companies relying on low-cost countries to deliver for a low-cost product or solution may be in for a rough awakening. Being the low-price leader may be a hairy proposition if the current geopolitical trends continue.
• Procurement must be viewed as a strategic part of the business, and the focus of the entire procurement organization must be on strategic alignment.
• Because the pandemic and the geopolitical upheaval coincide, it is not always easy to see which of the symptoms are caused by which issue. The pandemic impact on supply chains may become more subdued; yet effects may linger for years, and some – such as the increased adoption of eCommerce – may be here to stay. The geopolitical trends may continue or be reversed.

The questions to ask are: Will supply chain trip up our current strategy/ability to deliver? How can we adjust the supply chain for more agility, less risk, more visibility, appropriate total landed cost? If global trade becomes tougher, how does it impact our supply chain (cost, time, risk)? Is there a partner who can help with some of these issues? How can our supply chain be ahead of the game to meet future customer needs faster?

2020 is a year for deep reflection – personal and businesswise. Supply chain strategy must be central in business decisions for future success.