Building supply chain resilience
Kearney’s Resilience Stress TestSM
To better understand supply chain vulnerabilities and failure points, Kearney developed the Resilience Stress TestSM (RST), which evaluates supply chains across eight dimensions (see figure 1).
Five key challenges for supply chain resilience
Supply chain managers operate in a complex environment where resilience is one of many priorities demanding their attention. Kearney has identified five significant roadblocks to creating a resilient supply chain and tactics to overcome them.
Overreliance on key suppliers, with little geographic variation
Many businesses depend on just a handful of several key suppliers, often geographically concentrated in one country or region. While efficient, such concentrations diminish the overall resilience of the supply chain.
Companies have begun to diversify their geographic supplier and manufacturer footprint, and some are shifting supply chain operations to domestic locations. Rebuilding this capacity won’t happen overnight. In the first decade of the 21st century, American manufacturing employment fell by a third, losing nearly six million jobs. Since 2010, there has been a slow climb in manufacturing employment, recovering only about one million jobs (see figure 2).
Reshoring domestically is only one part of the solution to improve supply chain resilience. Some companies are moving some of their footprints to places other than China, such as India, Indonesia, and Mexico. Whether it’s reshoring or diversifying sources, moving supply chains is not an easy transition.
Kearney’s annual Reshoring Index tracks whether manufacturing is coming back to America from Asia, where so many jobs have been offshored over the past several decades. The latest Reshoring Index found that while US manufacturing imports from China declined by a precipitous 17 percent from 2018 to 2019 as trade barriers mounted, US domestic manufacturing output was virtually unchanged from 2018.
The reshoring challenge took on new urgency with the sudden rise of the global COVID-19 pandemic, which disrupted myriad supply flows, including personal protective equipment (PPE), pharmaceuticals, and other essential items.
COVID-19 sent manufacturing unemployment rates to a high of 13.2 percent in April 2020, resulting in a sudden increase in labor supply. Since then, employment levels have been steadily recovering each month. And while it may take some time before we return to pre-pandemic employment levels, manufacturers will continue to face stiff competition for the relatively few workers with the skill profiles needed to meet their current and evolving needs.
Reshoring domestically is only one part of the solution to improve supply chain resilience. Some companies are moving some of their footprints to geographies beyond China, such as India, Indonesia, and Mexico. Whether it’s reshoring or diversifying sources, the transition of moving supply chains is not easy.
Lack of rapid planning processes and tools
Managers suffer from low visibility into real-time supply chain activities and sudden demand shifts. The lack of rapid planning processes and tools makes dealing with changes slow and burdensome. Supply chain resilience depends on fast and flexible systems.
Companies are already digitizing and automating their supply chain operations to perform more reliably and efficiently against plan. However, digitization is not enough. Supply chain managers need the flexibility to adapt to unprecedented demands and unplanned situations of an unpredictable world in real time.
Supply chain resilience requires continually sensing and pivoting in response to changing conditions and unforeseeable variables (see figure 3).
These two fundamental drivers of supply chain resilience are often overlooked:
- Sense: To know, in real time, when conditions and demands vary from what was anticipated.
- Pivot: To identify where inflexible decision-making, processes, and assets constrain a supply chain's capacity to nimbly change course in response to the unexpected.
Developing these capabilities helps organizations evaluate supply chain resilience through a wider lens that can improve performance.
Complex product portfolios with unique components
Many companies have painted themselves into a corner with few supply options due to extensive spec requirements for inputs across the product portfolio. A more thoughtful approach to product design and standardization can support a more robust supply chain.
Kearney's Product Excellence and Renewal Lab (PERLab) brings design into the center of an enterprise and helps you take a more comprehensive approach to product portfolio management. This hands-on design lab focuses on cost reductions and revenue improvements, allowing a company to create a long-term competitive advantage through its products' life cycles.
The PERLab looks through four lenses to take a design-driven approach that enhances product value and supply chain resilience (see figure 4):
Limited capacity to fulfill multichannel demand
Consumers now expect an omnichannel experience and prioritize speed, simplicity, and top-notch service when buying online, in-store, and through social media and mobile platforms.
However, many brands lack the robust supply chain needed to provide customers with a satisfying multichannel and e-commerce experience.
To thrive in this environment, companies need to master what we call “shape of demand” capability in their supply chains. Instead of trying to predict an outcome 10 years in advance, we consider a variety of scenarios to optimize supply chain investments. This long-term view provides consistency in design and deployment of omnichannel technology solutions to enable new growth.
Focus on individual functions vs. a comprehensive view
Siloed improvement initiatives that do not address systemic issues across the supply chain are insufficient to drive fundamental change. Managers need to foster a culture that helps executives within the organization consider the ramifications of their decisions on the supply chain.
Before the onset of the COVID-19 pandemic and its economic shock waves, companies had been taking steps to view their supply chains with an end-to-end (E2E) perspective. An optimized E2E supply chain is desirable for many reasons, including stopping the massive value leakage occurring at the interfaces of the many silos in their supply chain operations.
A supply chain control tower (SCCT) can enable resilience and sits at the heart of traffic to monitor, analyze, inform, coordinate, and respond to alarms and events. An SCCT can help provide the crucial visibility that is often lacking to help you see your supply chain. Setting up control tower capabilities can become a multiyear quest for perfection, and sometimes that’s what’s needed. But right now, it’s essential to set up such E2E enablers quickly. The goal should be to promptly develop an adequate level of design thinking to launch an SCCT pilot by focusing on the essentials, which are linked and not mutually exclusive.
Organizations can set up an SCCT design by focusing on six key elements:
- Processes. The SCCT will need to connect various stakeholders and internal processes to the control tower’s operation.
- Metrics that matter. Organizations should select metrics that reflect their strategic objective that maps to desired actions, behaviors, results, and performance.
- Analytics and reporting systems. These are the tools, systems, and platforms that the SCCT will use for analytics, visualization, and reporting of the metrics that matter.
- Data. Supply chain managers should focus on connecting, accessing, and cleansing the data that the organization already collects and uses.
- Organization and change management. The best way to drive change is to implement the SCCT in an agile manner that incorporates user feedback, proves the concept, demonstrates value early, and delivers an impact that people can see.
- Governance and operating model. This should cover the essentials, assign roles, responsibilities, and decision rights across stakeholders. The simpler the model, the better for most organizations.
An agile mindset and approach are essential. A series of sprints conducted using proven agile methodologies can help companies quickly test an SCCT process to build more supply chain resilience.