“Resilience” isn’t the Answer to Supply Chain Problems (McKinsey: It’s time to re-think the strategy on Supply Chain Management)

The impact of COVID-19 has caused the world to realize what many operators have known for a while: supply chains are running at a distinct disadvantage. Globalization and the ever-increasing need for profitability have caused companies to live by a creed of efficiency: the faster and cheaper, the better.

However, major disruptions like those caused by the pandemic have forced companies to square off with the repercussions of that same mantra. Prioritizing efficiency overlooks a supply chain’s true complexity. And while the pandemic escalated the urgency of addressing those oversights, the truth is that the writing was on the wall well before COVID-19.

Over the last 30 years, large-scale disruptions in supply chain have repeatedly occurred—and will undoubtedly happen again. Growing geopolitical tensions, climate-related disasters, and pandemics are just a few examples of real-time factors that will continue to interrupt supply chain operations. If there’s anything to learn from COVID-19, it’s that the unpredictable scale and impact of these calamities makes the status quo completely intolerable. Supply chains must modernize in order to manage and survive rapidly increasing volatility.

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However, despite this reality, most companies continue to be dealt the same old recommendations for supply chain best practices. A recent article by McKinsey & Company exemplifies this perfectly by calling out all the new, dynamic challenges in supply chain, but then presenting a call-to-action based entirely on dated strategies that have left the supply chain industry wanting for decades now. As a McKinsey alumnus and a supply chain professional, I feel compelled to speak up on behalf of the hundreds of supply chain leaders and practitioners who tell me often that they are desperate for real, tangible solutions that can be implemented in a pragmatic way.

 

COVID-19 pandemic has revealed how fragile lengthy, complex supply chains can be—and how much society has riding on their continued smooth functioning. - McKinsey & Company

Companies Should Prioritize a Dynamic Supply Chain, Not a Resilient One

As usual, McKinsey & Co. incorrectly frames the challenge facing supply chains as a “resiliency” problem, while citing well-sounding practices such as near-shoring suppliers, stockpiling inventory, and multi-sourcing materials as the practical solutions. This mischaracterization can be traced to a misunderstanding of the real nature of today’s supply chain. McKinsey & Co. operates from a dated perspective: an operation that can take a hit when something goes wrong, and then bounce back afterward to resume the same form. In today’s supply chain, however, things go wrong all the time, and that no amount of stockpiling resources or diversifying suppliers—even if economically practical, which they aren’t—can change that. Nor, do we necessarily want to bounce back the same way!

The key to thriving through volatility isn’t in anticipating unique disruptions and guarding yourself against them on a case-by-case basis. It’s about understanding that supply chain is inherently volatile. Something will always go wrong—and as in the case of COVID-19, sometimes catastrophically—and the best defense against volatility is enabling a dynamic supply chain that can continuously execute by making real-time adjustments.

 

Update Your Intel Before Changing Your Supply Chain

McKinsey & Co. needs to bring its research into the current millennium. Multi-sourcing, increasing inventory, localization, and network optimization are all supply chain strategy recommendations that were favorites of analysts back in the 1990s. Not only did they make supply chains more fragile back then (case in point: the supply chain woes latently exposed by COVID-19), they certainly won’t work now that the supply chain network has grown more intricate, cost-conscious, and vulnerable than ever.

 

Why haven’t more companies acted? Short-termism is one reason. Many were unwilling to bear the present-day cost of preparing for future hypotheticals. But vulnerability will continue, and global shocks will happen. - McKinsey & Company

Let’s be realistic for a moment. Each of these recommendations takes years to implement, and most of the time they never happen—they just look good and make sense at a surface level. How many times have you recommended dual sourcing, only to be told it’s not worth the quality headaches? Or, how many times have you recommended near-shoring, only to be told it’s too expensive (as if we didn’t already know that)?

Whether it’s said explicitly or implicitly, most companies view supply chain as a cost center, which makes any structural change an afterthought. I don’t blame companies for thinking this way. In today’s world, SKUs change faster than ever, delivery windows are tighter than ever, and we’re seeing more nonconformance penalties than ever before. Our supply chain teams are already overworked, and we’re pushing our supply chain partners to their limits as well. Network redesigns sound great, but we don’t have the time, bandwidth, or money to make these types or recommendations realistic or even helpful.

 

Artificial Intelligence and Big Data Won't Save You

Next, McKinsey & Co. recommends artificial intelligence and big data. Unfortunately, these types of generic, hypothetical recommendations are no more than vague gestures towards boosting McKinsey’s own “best practices.” While AI and big data will play a big role in how supply chains operate in the future, neither concept is currently applicable to avoiding or managing another pandemic or similar crisis in the near term. That being said, technology is absolutely critical in a way that’s useful TODAY. We need to leverage technology as an asset for supporting management that understands supply chain’s true nature.

In the same vein, the end-to-end supply chain visibility that McKinsey recommends is not a standalone answer. My years’ of experience building end-to-end visibility software has taught me that full visibility into 100K shipments, for example, doesn’t make a difference if you can’t pinpoint the one late shipment that actually matters. We have to pair visibility with execution. Fortunately, that’s something that we CAN DO TODAY.

 

The New era of supply chains: Flexibility through a Service Management Model

McKinsey & Co. is spot-on when they describe three decades’ worth of industry trends putting cumulative pressure on supply chains to perform at higher capacity while also paradoxically minimizing costs. They’re also correct that the future will entail routine extreme disruptions like COVID-19. However, a resilient approach is not the answer. We don’t want to build supply chains that snap back to the way they were. Instead, we must enable supply chain organizations to be dynamic, so they can agilely and efficiently adjust to changes in real time.

Instead of defaulting to old school solutions or jumping the gun with unproven tech trends, a healthy and forward-thinking supply chain will pair visibility with execution. Elementum is designed to provide just that. As the Supply Chain Services Management Platform, Elementum provides complete visibility into your supply chain exceptions, upholding:

  • A single source of truth that allows you and everyone on your team to know what’s going on at any given moment—no chain emails or guesswork necessary,
  • Clear accountability within your team for who handles what problems when they arise,
  • Automated alerts that provide you with real-time updates on every aspect of your supply chain,
  • Analytics that grant you actionable insights,
  • Root cause analysis to determine why incidents are occurring and what you can do to prevent them.
    Product

Getting started with Elementum takes only a matter of days—no team overhaul or even IT involvement necessary.

Upgrade from a “resilient” supply chain to a dynamic one. See what Elementum’s platform can do for you. Get in touch at www.elementum.com, or send me an email at ceo@elementum.com.

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