Leading Supply Chains during Uncertainty

The global business landscape navigates multiple boom and bust cycles marked by outliers. These events require business leaders to embrace bold decisions that pave the path for organizations to be either at the forefront or follow their peers. While often not in the limelight except during crises, the supply chain functions in organizations are essentially the backbone of their operations and are now rightly recognized even at the board levels. The frequency of black swan events in recent times has underpinned the need for supply chains to embrace VUCA (Volatility, Uncertainty, Complexity, and Ambiguity) as the new normal. Now more than ever is the time for leaders at every layer of the supply chain function to imbibe flexibility and out-of-the-box thinking, not just for them but also to encourage their larger teams to ensure that consumer and shareholder expectations are at the heart of every action in the face of adversity, write Rohit Menon- supply chain professional in the fast-moving consumer healthcare sector,, V G Venkatesh- Professor at EM Normandie Business School, France and Haripriya Vasudevan- senior program management professional.

Business leaders rely on recommendations from operational teams to ensure the right course of action is adopted to march ahead. It is a fact that global organizations work in a matrix format with multiple layers of data exchange from the point of occurrence to the moment of decision-making. As financial and operational planning teams are adept at scenario planning and forecasting, ensuring the latest guidance or intel is accounted for in their recommendations is of utmost importance. Multiple occasions draw attention to the fact that decisions taken are outpaced by a week or a month in the real market.

From sourcing at the best cost to leveraging the best available technology in external supply partners, business revenue is highly exposed in the upstream and midstream segments of a supply chain outside one’s organization. Due to the limited real-time data integration across external supply partners, decision-making is exposed to data latency or unavailability.

With an increased focus on these gaps, supply leaders are making formal efforts to integrate financial and planning interfaces with external partners to ensure the availability of high-quality real-time data. With revenue-sharing models coming into the picture, we are seeing a gradual shift in the mindset of external supply networks towards collaborative growth strategies.

A recent case in point is how the maritime shipping chokepoints are vulnerable to geopolitical situations such as in the Suez Canal. Prominent global carriers were forced to increase their shipping lead times by choosing alternate routes across the horn of Africa, alongside spiking insurance and logistics costs. Organizations that could leverage real-time coordinates by using in-house control towers or technology-adept 4PL partners were at an advantage. Assessing the scale of their finished goods volume in the conflict region, they could make swift decisions to re-route their cargo to intermediate ports of call, disembark critical high-value goods, and further utilize airfreight modes.

A parallel issue that organizations with in-house manufacturing face during such a geopolitical crisis is – How long their factories can run efficiently until a production material shortage occurs? The planning teams should swiftly coordinate with site scheduling and value stream teams to activate contingency production plans in such material crises. The freshness and accuracy of information to its best available detail during crisis also help companies minimize risk as complete risk mitigation may be infeasible. As nobody loves surprises, transparency in sharing with shareholders the adverse cost and cash exposure on their P&L during crisis management, holds the key to sustaining trust in an organization brand and its supply network.

The importance of the financial metric, Return on Assets (ROA), should not be overlooked. Prior to investing any further into newer technologies or interfaces to improve data agility, an E2E mapping of existing in-house technologies may expose cases of under-utilization. Process improvements supported by adequate end-user refresher training on existing data systems alone may drive an intangible improvement in the company’s ROA.

While delving into improving data velocity and completeness, one has to acknowledge that a stable operating environment and a crisis are worlds apart. In a stable operating situation, a higher amount of data supports good decision-making, but in uncertain times, waiting for the perfect set of data may be ineffectual. It may risk delayed decision-making, and the competitor may leap ahead when time is of the essence.

LEVERAGING GLOBAL SUPPLY NETWORK

The pandemic in the last years reminded them of increased regional or local sourcing presence. The lockdowns globally had a detrimental impact on the smooth movement of goods irrespective of industries or regions. In some product categories, stockouts on shelves were mitigated in a few months, whereas in some extreme cases, increased global sourcing costs directly depleted product margins to the tipping point of their discontinuation. The pandemic was a stark reminder of how agility, flexibility, and scalability proved to be a boon for some companies, whereas a bane for the others that were averse to network change management.

It would be impossible to predict when and what the next black swan event could be. For supply, it would be short-sighted to completely move towards onshore manufacturing even though goods movement across global borders was impacted during COVID. In many supply organizations that responded with agility, the presence of their global dual production sources helped ensure product presence was alive on shelves or pharmacies. Specific to certain industries, such as consumer healthcare or pharma, regulatory approvals could be linked to the manufacturing site, country of origin, and qualified vendors for production materials. It is critical to maintain flexibility in regulatory filings that support multiple sources of manufacturing sites globally where production technology allows for it. From a procurement perspective, a mapping of sole or single source hot spots up to the tier I or tier II vendors should be carried out, and the development of backup sources could prepare for any future adverse events. Disruptions are unavoidable. However, these strategies could enable leaders to swiftly decide to ramp up backup sources available in their supply network in the event of a natural calamity or geopolitical event.

Organizations are gradually inculcating the need for more generalists and restricting functional experts. This improves the flexibility across the management chain so that people can step up in crisis management. A compelling similarity in human resource management and manufacturing network strategy could be delved deeper into brownfield or greenfield investments if viewed from the lens of multivalent production line capabilities, which can complement the organization from a network strategy de-risking standpoint. The automobile industry was able to leverage the effective use of multivalent lines and modularity in product design. This brought a combined benefit of de-risking and cost efficiencies.

NOT ALL BOXES MAY BE TICKED

The supply chain challenges today have multiple interdependent elements internal and external to an organization. The situation is continually evolving, ranging from taxation, climate policies or regulatory changes requiring leaders to shift gears smartly. There will be multiple scenario recommendations and opinions from within an organization, however with no single correct answer. Consequently, some solutions emerge from a risk-based trial and course correction approach. An operationally flexible and agile team with a continuous improvement mindset needs to support this approach. Perfectionism may need to be compromised for the most optimal solution during a crisis or an uncertain situation.

From a product distribution standpoint, an approach that many consumer-packaged goods organizations followed during the pandemic was to curtail their sales portfolio. This was achieved by striking a balance between brand presence on shelves for their most strategic and consumer-sought products and the ability to maintain manufacturing lines running. Product sites globally were faced with increased levels of absenteeism and potential shortages in their production materials. This distribution strategy required cutting down the presence of wider brand extensions or different variants/flavors among customers but ensuring the product was not in absolute stock-out for extended periods across their channels. Not all the business markers on the scorecard may be positive during such a phase. The key was to strike the right balance between market share, top & bottom line, and business continuity with the long term in sight.

Panic buying trends were observed during the pandemic's initial phases, rendering statistical forecasting models ineffective. A low-data decision-making process backed by qualitative insights was essential to planning effectively for a crisis-limited product portfolio. It is a reality that business-supportive AI and machine learning models can succeed better with more supportive trends or data. However, unstable business environments may not present the luxury of having a wealth of information at our disposal. During these times, leaders need to recollect that low data decision-making helped humans thrive across millennia in the face of adversity, and not all boxes may be ticked prior to taking some key steps during uncertainty.

AVOIDING ISLANDS OF EXCELLENCE AND OCEANS OF MEDIOCRITY

On various occasions, continuous improvement initiatives are piloted in certain geographies within specific departments of supply chain organizations. Unlocking the long-term value of such initiatives relies in scaling up the operational excellence initiatives equally across the entire global supply network.

A modular approach to continual improvement that can be easily adapted irrespective of variables globally should be ensured to support scalability of excellence programs. Global organizations sometimes underestimate how much learning a factory in one corner of the globe could pass onto another in terms of best-in-class practices. Processes improved through multiple cycles of trial & course correction could translate to significant benefits while expanding supply networks or production portfolios. Global centers of excellence in supply chain can help keep alive the crisis management playbook to ensure future leaders don’t have to traverse the entire lap right from the starting point.

The leaders also may need to zoom out and share the learnings across regions with humility to ensure that failures in one part of an organization are not repeated in another corner of their global supply network.

Even though an internal race to the podium may exist across sub-regions or functions in an organization, the shareholders win only when the entire global supply chain marches in rhythm and not with pockets of perfection.

SUSTAINABILITY IN SUPPLY CHAINS - A DYNAMIC MANDATE FOR LEADERS

While economic aims often overshadow social and environmental objectives in supply chains, today's leaders are keen on championing all three amidst challenges across different business verticals. This mission dances between participatory and transformative styles; each earning nods given the havoc wreaked by disruptions.

Take, for instance, social inclusivity in the supply chain, a participatory leadership style demands the fusion of diversity, equity, and inclusion strategies to forge sturdier, more flexible, and sustainable supply chains. Think of manufacturing giants embracing local talent or e-commerce firms like Amazon, Zomato, and Noon, enlisting individuals from diverse backgrounds and democratizing access to opportunities, resources, and benefits within the supply chain.

Some corporations undertake initiatives to upskill marginalized groups for supply chain roles, enriching the talent pool. These adaptive capacity-building endeavors nurture alliances and mitigate risks, fostering an empowering ecosystem primed for innovative solutions and approaches in the competitive corporate landscape. Leaders vouch for risk diversification across various nodes via the diversity, equity, and inclusion framework. An interdisciplinary mindset signals multiple perspectives, experiences, and problem-solving strategies, equipping teams to foresee and tackle unforeseen challenges in pivotal moments easily.

However, some organizations find it more challenging to manage them during uncertain times, as priorities shift and are influenced by other conditions, such as geopolitical requirements and supply disruptions. The growing demand for environmental actions and their associated results forces organizations to redraw their performance metrics, especially after recent global disruptions. Leaders may need to communicate these changes effectively to their stakeholders. Such conditions also prompt leaders to steer transformative projects squarely to safeguard the business objectives.

It calls for Visionary Leadership to integrate sustainability into supply chain operations:

• Articulate vision effectively to inspire and mobilize stakeholders towards sustainable practices.
• Ensure Strategic Alignment with sustainability goals and initiatives.
• Foster Collaboration with suppliers, partners, and stakeholders to drive sustainability initiatives throughout the supply chain, building strong relationships based on trust and shared values to implement impactful changes.
• Leverage Technologies such as IoT, blockchain and AI to drive sustainability improvements in supply chain processes and enhance transparency, traceability, and efficiency.
• Encourage employees to Stay Updated on sustainability trends, best practices, and emerging technologies to drive innovation and adaptation.
• Promote transparency and accountability across the supply chain by setting clear sustainability metrics and targets and using effective reporting practices.
• Develop proactive Risk Management Strategies to conduct thorough risk assessments, identify potential vulnerabilities, and implement mitigation measures to enhance resilience.
• Engage and Empower employees at all levels to contribute to sustainability efforts. They should provide training, resources, and opportunities for involvement, fostering a sense of ownership and commitment to sustainability goals.
• Adopt a Long-Term perspective on sustainability, recognizing that investments in sustainable practices may require patience and persistence to yield significant results that deliver lasting benefits for the business, society, and the environment.
• Use their influence as leaders to Advocate for sustainable practices within their industry, engage with policymakers, and champion sustainability initiatives to drive systemic change.

CHOOSE WHICH RACES TO RUN

Uncertainty and ambiguity are not limited to operational supply situations but also affect long-term investment decisions in manufacturing, digitization, and automation technologies. There is always new technology on the block, which organizations may be vying for. It is important for leaders to ensure that a company doesn’t get into the rat race unless it translates into long-term value for shareholders and consumers.

As an example, the adoption of blockchain in supply chain networks caught the buzz a few years ago, and organizations are trying to invest in internal talent or leverage external partners to explore its use cases. Blockchain and distributed ledger technology are fit for purposes where transactions are carried out without central oversight in simplistic terms. Here in lies the question for organizations to ponder, across which segments of their supply network should blockchain technology be explored.

In a regulated consumer healthcare or pharma industry, downstream distribution of finished products across multiple countries has track and trace technology embedded in their sellable packs. This enables consumers to understand the history of all the components that went into its production and the entire route the product traversed from the raw material stage to the consumer’s hands. For example, this area has a central reporting mechanism overseen by a country’s health authority, where investment into blockchain may seem redundant.

However, much upstream in the supply chain, where external supply partners are involved, there could be cases where the adoption of blockchain could help secure data integrity. From an ethical and sustainable sourcing standpoint, the blockchain model's traceability and tamper-resistant nature helps verify if the components are ethically sourced and from whereby external vendors. Recently, Walmart has explored the adoption of blockchain to trace the source of mangoes in the US, for example, to improve visibility and traceability. Another case in point is Maersk partnering with IBM to utilize blockchain technology. They aim to improve process efficiency in cross-border transactions involving multiple parties, a sector where reliance on manual paperwork is still prevalent.

Leaders need to consider that there is no ‘one size fits all’ approach when embracing newer and upcoming technologies in the supply chain industry, as in any other. It is worth noting that leveraging internal process knowledge alongside credible industry benchmarking and insights is key to unlocking end consumer value.

Before pursuing any new technology, leaders should conduct thorough strategic planning and evaluation. This involves assessing how the technology aligns with the company's long-term goals, whether it adds value for shareholders and consumers and the potential risks and challenges involved. They should remain flexible and agile in investing in knowledge acquisition and learning to stay informed about emerging technologies and industry trends, adopt new technologies, and allow for course corrections and adjustments based on evolving market dynamics and feedback.

Leaders should also be open to diversifying investments across different technologies and innovation initiatives to mitigate risk and increase resilience. More importantly, they should ensure that technology adoption aligns with Ethical standards, corporate values, and Social Expectations to maintain trust.

“It is smart to be Ethical,” said a renowned leader.

In the intricate web of supply chain management, ethics, and values serve as the guiding light, ensuring sustainable and responsible business practices. Genuine customer service, founded on honesty and transparency, not only fosters trust but also cultivates long-term relationships. In an era where profit margins often overshadow moral compasses, it is paramount for leaders to recognize that success is not solely measured by dominance over stakeholders. Rather, it lies in the integrity of actions and the commitment to ethical conduct. Misinformation and deception may yield short-term gains, but they erode the foundation of trust, ultimately leading to detrimental consequences for businesses and society. By embracing ethical principles and prioritizing authentic customer service, leaders uphold their moral obligation and pave the way for a more sustainable and prosperous future. Such values, once deeply ingrained in the system, would bring the most needed change and sustainable growth in the business world.

While, we have embraced VUCA (Volatility, Uncertainty, Complexity, and Ambiguity) as the new normal, it would be interesting to note that, a management professor from Harvard has coined a new model, the VUCA 2.0, a strategy for steady leadership in an unsteady world.

VUCA 2.0 - Vision, Understanding, Courage, Adaptability - With a clear Vision for their organizations, an in-depth understanding of their organization’s capabilities and strengths, stepping up with Courage to face challenges and risks that are posed by business dynamics, and being flexible and Adaptable to external changing circumstances, without altering strategic course, built on the principles of Ethical Value systems, leaders can ensure success even during the face of uncertainties. This new strategy of VUCA 2.0 seems more promising, practical, and sustainable in the years to come.

A day in the supply chain doesn’t pass by without multiple reminders of how little influence we have on the level of change and uncertainty globally. Inculcating among the operational teams, a mindset to navigate this omnipresent change with agility and bold continuous improvement practices can help organizations compete and succeed in today’s ever evolving and uncertain business landscape.