Vulnerability In the Supply Chain: Keys For Building A Resilient Business
We don't have a crystal ball, but it's clear that future-ready supply chains need to be customer-centric, able to operate with agility, and use technology to do so profitably.
Continuous evolution across all facets of business is normal, but never has the pace been as fast as it is now. Technology and digital disrupters, changes in workforce skill sets and work patterns, and of course, the ongoing impacts of Covid-19 are impacting businesses both large and small. Those who can roll with the punches and provide the right product or service in the right way will be the ones who survive and thrive, despite this maelstrom.
The key here is “in the right way." Let’s assume your consumer-facing business is offering the “right” product or service — one that consumers want or need. Can your audience access your product conveniently? Is your supply chain resilient, both upstream and downstream? Is the process customer-centric? Are you using technology to your advantage? Is your product sustainable?
The supply chain shock
Covid-19 upended the supply chain, impacting consumer industry segments in different ways and we’ve yet to understand the full extent of the fallout. What’s clear, though, is that for many businesses, supply, inventory, and agility have been primary concerns. Just look at the supermarkets, where essential goods have experienced shortages — many of the large retailers couldn’t stock their shelves fast enough to satisfy consumer demand. On the flip side, many retailers of non-essential items found themselves burdened with excess stock, trapped in stores and warehouses due to pandemic lockdowns and restrictions, contributing to cash flow deficiencies.
According to Ernst & Young LLP (EY US), 60% of executives say the pandemic has increased their supply chain’s strategic importance. The focus is on making supply chains resilient, end-to-end, but what does that really mean? And what should forward-looking businesses be considering to make sure they’re ahead of the pack?
The rise of agile execution
The businesses that have navigated the crisis better have generally been those that have been quick to adapt their operating models, whether it’s adapting the product to satisfy demand, finding new suppliers to bolster their upstream supply chain or shifting retail channels downstream. Examples are abound of businesses that have successfully moved to online sales channels. Geppetto’s, a San Diego based toy store that moved from in store sales to web sales with an order online and pick-up in store option. Anticipating a drop in store sales, Two Hands Paperie in Boulder, Colorado followed suit, rolling out curbside pick-up for online orders and buying a warehouse to store products for online shipping. The company increased its online sales by 700% over the Black Friday shopping weekend in 2020 compared to the previous year, exceeding its overall sales figures.
Some of the more traditional big players have also adapted their delivery model, moving to direct-to-consumer channels. PepsiCo, for example, launched two direct-to-consumer websites (PantryShop.com and Snacks.com) to meet customer demand. The websites were built from the ground-up in less than a month.
What’s the lesson in all of this? It’s that businesses need to be agile. They must be able to adapt to changes in the market in terms of demand and also changes in the upstream supply chain.
Cost versus resilience
An agile business is one thing, but agility often comes at a cost. That’s been made clear as freight and manufacturing issues have blighted so many industries throughout the pandemic. Covid, though, hasn’t caused the supply chain vulnerabilities — it’s just highlighted them.
Organizations that optimized cost over resilience, relying on single-sourcing or low-cost sourcing from specific geographical markets that offer cost advantages, have been particularly hard hit. Freight and manufacturing delays have led to supply shortages that point to the idea that diversification of supply, and in many cases local sourcing and using technology to improve visibility, can reduce risk. According to a report by Capgemini, as many as 68% of organizations are now actively investing in diversifying their supplier base to reduce their reliance on single-source suppliers and 62% are diversifying their manufacturing base.
In addition to the supply side, it’s important to consider the evolution of consumer demand. From convenience, to delivery turnaround, to order visibility, to user experience expectations, the consumer market is evolving and companies that don’t factor this in do so at their own peril. According to McKinsey, top companies that sustain a comprehensive focus on the customer can generate economic gains ranging from 20% to 50% of the cost base.
So what do customers want? They want an easy, convenient purchasing experience, which is why e-commerce has boomed. But where do we go next, and what’s the next innovative delivery model?
Getting smart with delivery
Advanced analytics, artificial intelligence and autonomous technology are likely to play a key role moving forward — certainly in upstream supply chains, but also downstream in shaping the consumer experience.
Cadi is an example of where Big Data and AI can take us — the innovative sporting goods retailer can turn any place into a powerful retail location that offers a quick, seamless and integrated shopping experience, resulting in a completely personalized shopping experience tailored to each individual.
Cadi’s current focus is on golf equipment. Golfers typically prefer to trial products on the course before buying, and Cadi is addressing this through the use of on-course kiosks that enable golfers to try before buying. They then have the option to order online. This marriage of technology, data, and a consumer focus may just be the next big thing to disrupt the downstream supply chain.
Into the future
None of us have a crystal ball, but it’s clear that future-ready supply chains need to be customer-centric, able to operate with agility and use technology to do so profitably. In the words of Sigmund Freud, “Out of your vulnerabilities will come your strength.”
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