Supply Chains Must be More Resilient

Resiliency may be a "cost", but it may also be the benefit you cannot pass up
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Supply chain is undergoing a series of seismic shifts. Post-pandemic (said with optimism rather than certainty) demand is surging, supply is stumbling, logistics is backing up, and prices are climbing. There are shortages everywhere and the root causes are varied. In some cases, it is historical capacity unable to keep up with demand growth; in other cases, it is supply disruptions from a lack of workers or shipping containers. As a consequence of both the scale and frequency of disruptions in the current supply chain/business environment, companies have zeroed in on two things to address risk and become more resilient.

70% of companies are focusing on improving supply chain visibility and 80% are looking for ways to be more agile.

Based on responses from IDC’s 2020 Global Supply Chain Survey.

Indeed, it has long been my view that a resilient supply chain must be able to see what is happening in real time, have the intelligence capabilities to quickly assess what is happening, and then do something about it. If the supply chain lacks agility, no amount of forewarning will help if you are not able to respond to what you see; conversely, agility will be much less useful if you lack the ability to know where and how to react.

Although supply chain resiliency is critical in today’s disruptive environment, companies have often found it difficult to detail the business case fully and justify its return on investment — and to build the necessary internal capabilities. However, as the global pandemic moves into its third year, it has revealed persistent “cracks” in the supply chain and presented organizations with an unique opportunity to transform their supply chain and be truly resilient.

Over the last 18 months, I have had this recurring conversation with manufacturers, to wit ‘we were investing in the right things, the right digital technologies, in our supply chain, we just weren’t doing it fast enough’. There are clear correlations with a business’ digital transformation maturity and market performance. In an ongoing IDC study, we have compared digital maturity with both revenue and profit growth and found that companies we assess to be more mature outperform those that we assess to be less mature, so the comment about not going fast enough appears to be rooted in measurable performance. We use the term ‘correlation’ intentionally and with purpose, as causation is much harder to prove, but the trend is unmistakable. Interestingly, in the aforementioned 2020 survey (to be redone this Spring), when asked about the key gaps in the supply chain, 50% of companies felt that ‘a lack of digital competencies limits the ability to transition their supply chain to new business models‘. I would expect that as disruptions in the supply chain persist, or even grow, the performance disparity between digitally mature and digitally immature companies will grow because they cannot easily adapt.

IDC has historically defined resiliency as the capability of a supply chain to ensure and preserve the continuity and consistency of product suppl,y and meet business obligations for product delivery and service to customers, in the face of a broad range of potential supply chain risks, both short-term operational and longer-term strategic disruptions. But what does this mean for the supply chain specifically? The answer, or at least ‘an’ answer, is that the manifestations of supply chain resiliency, as well as the drivers, will differ for different companies. For some, it may be about improving inventory performance (getting to a more “agile” inventory); for others, it may be about visibility into mixed factory networks; and for still others, it may be about supplier diversification.

In a recently published research report on the stages of resiliency I noted that companies run the range of maturity levels. There are those where the supply chain is focused on functional metrics and historical performance measures and KPIs, without consideration for the digital tools or key processes to identify, anticipate, or effectively respond to disruption. Then there are those that operate their supply chain as a digitally enabled, thinking organization, that can easily and comprehensively identify and anticipate disruptions and mitigate them ahead of time, or be prepared to react quickly when they occur (IDC MaturityScape: Digital Supply Chain Resiliency 1.0). These are the ‘end’ points, of course; most companies sit somewhere in between, but it highlights the variability that exists for supply chains on their resiliency journey.

Supply chain resiliency has emerged as a top, perhaps the top, goal for the supply chain post-pandemic. It is now crucial for executive leadership and IT and supply chain managers to assess their digital supply chain resiliency and define a path for improving business performance in the face of increasingly frequent supply chain disruptions. To learn more about supply chain resiliency, read IDC’s new eBook, “Progressing Supply Chain Resiliency”. Click the button below to download the eBook.

Simon Ellis is responsible for providing research, analysis and guidance on key business and IT issues for manufacturers. He currently leads the Supply Chain Strategies practices at IDC Manufacturing Insights, one of IDC’s industry research companies that addresses the current market gap by providing fact-based research and analysis on best practices, and the use of information technology, to assist clients in improving their capabilities in critical process areas. Within the Supply Chain practice, Simon is directly responsible for the research in the Supply Chain Planning Strategies practice while also managing the Supply Chain Execution Strategies practice. These supply chain practices specialize in advising clients on supply chain network design, S&OP, global sourcing (Profitable Proximity and Low-Cost Sourcing), transportation, logistics, and more. He also supports IDC Retail Insights IT Strategies practices.