Founder and CEO of Maine Pointe and author of Total Value Optimization: Transforming Your Supply Chain Into a Competitive Weapon.
The global pandemic upended supply chains and operations with challenges nobody foresaw. The slowdowns and lack of demand are being followed by what may be an even greater challenge of unprecedented growth, which is set to increase rapidly as consumers and businesses start spending following the pandemic.
Some companies have not survived, and more will continue to struggle to adapt. Even the best boardroom planning fell short when the global impact of the pandemic combined with social upheavals, natural disasters and political challenges caused the biggest disruption to social and economic life in the past 100 years, leaving boards with a pressing need for new strategies as a predicted post-pandemic boom puts pressure on already vulnerable supply chains.
Major disruptions, including the 1918 pandemic, are often followed by an economic boom, and it is predicted that late 2021 will see the same as consumers return to normal habits and start spending the estimated $2.3 trillion in savings they have accumulated. This number represents nearly a twofold increase (up from $1.2 trillion) compared to the same quarter the previous year before the pandemic. Preparing the supply chain to service rapid growth and new consumer and business services expectations of same-day availability could be more of a challenge than dealing with pandemic-driven shutdowns. Boards will be re-evaluating their past strategies in a post-mortem analysis to determine where the new opportunities for growth may lie.
The board will also need to take a forward-looking approach to address newer concerns, especially as ESG (environmental, social and governance) issues enter into the mainstream and require board-level consideration. In terms of the global supply chain, boards are incorporating ESG strategies in post-pandemic supply chain rebalancing, which may positively impact the bottom line.
Rebalancing The Supply Chain Model
With much of the world shutting down and consumers demanding staples during the past year, nearly every supply chain has faced at least some disruption, and during its peak, business continuity concerns led to a re-evaluation of long-term strategies and identification of operational stress points. With traditional supply chain strategy revolving around a simple cost-based model, sourcing strategies built an over-reliance on a small number of suppliers in a global push for labor arbitrage and inventory management. In many cases, this was China, which early on, faced the strictest shutdowns in the world. In normal times, this global focus delivered cost advantages, as well as advantages in the accessibility of goods, but the shutdown exposed the risk in this often singularly focused global supply chain.
A major priority for boards in 2021 will be to reassess the supply chain model, make it more strategic in order to find a competitive advantage and ensure greater visibility not just into suppliers but also into suppliers’ suppliers. Rather than building a supply chain with cost as the prime (or only) consideration, today’s supply chain will have to build in a de-risking strategy, greater visibility and a higher level of optionality so that if another disaster occurs in the future — and it will — companies will not be stuck with most of their suppliers and suppliers’ suppliers coming from a single region of the world, limiting optionality.
Achieving Growth, Even During A Disaster
Boards are less concerned with day-to-day operations and more concerned with creating strategies to ensure the continued growth of EBITDA and cash. To ensure that continued growth, boards must approach the supply chain as more than just an operational concern and see it as a true competitive weapon.
New consumer and business expectations and demands are changing the landscape and leading to dramatic transitions in industries. As a result, companies across all industries, including private equity firms with aggressive M&A strategies, will need to adapt board strategies that mandate deeper involvement in supply chain and operational considerations and target acquisitions that can create measurable value.
Strategies For Post-Pandemic Planning
Board members, the C-Suite, supply chain and operations executives and planners all will need to build a better supply chain that is more resilient and better able to withstand predictable and unpredictable disruptions. Companies must prepare for when consumers unleash trillions of dollars in spending. Five strategies for every board to consider in 2021 planning and beyond should include:
Data insights: While instinct will always play a part in planning, it shouldn’t need to play that big of one. Consider how a new data strategy with a strong analytics component will drive improvements in end-to-end visibility, better data-driven forecasting and AI-driven analytics to improve decision-making and optimize cost, cash and growth.
Scenario planning: With additional data, planners will be able to do more than analyze based on past performance; they will use predictive analytics as well to build in better forward-looking strategies that take into account what has happened in the past and what may happen in the future based on different scenarios.
De-risking the supply chain: Global supply chains are inherently vulnerable, and new strategies will have to include de-risking. Optionality must bring a balanced approach over a purely cost-based focus, re-balancing the global manufacturing, distribution and supply chain elements to avoid over-reliance on a single supplier or region in an effort to alleviate the impact of regional disasters in the future.
Stress testing: Stress-test manufacturing and distribution operations to make sure they can cope with a rapid and significant increase or decrease in demand, and examine new ways of driving throughput improvements and optimizing distribution and logistics capabilities.
Operations transformation: As the global supply chain shifts from purely global to a regional/local mix, we will also see additional investment in automation technologies such as additive manufacturing, robotics and artificial intelligence to mitigate higher labor costs.
Board planning for 2021 and beyond is unlike any other year before it. The most important strategy for post-pandemic planning is simply to understand that the goal is not, and must not be, achieving a return to the pre-pandemic business environment. Parallel strategies for stronger ESG as well as supply chain rebalancing will set the tone for the future for years to come.
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Founder and CEO of Maine Pointe and author of Total Value Optimization: Transforming Your Supply Chain Into a Competitive Weapon.…