More complex trade-offs are necessary to maintain a high-performing supply chain

As a result of the lessons companies learned from the COVID-19 pandemic and the various supply chain disruptions that followed in the years since, the importance of the supply chain has reached the CEO’s desk. As a result, more CEOs are demanding organizations reinvent their supply chains to avoid the issues that have plagued so many in recent years.

“The traditional formula that governed supply chain decisions no longer suffices,” a report from Bain & Company noted. “Reducing costs, optimizing inventory, improving service and quality, and driving growth remain fundamental priorities. But now, supply chains must also become more resilient, sustainable, and highly responsive to changing customer expectations.”

Trade-offs are a necessity

The report’s authors, Hernan Saenz, Tracy Parker, Adam Borchert, and Joshua Hinkel, found that supply chains are balancing the trade-offs necessary to navigate the present and future, and those that get these trade-offs right will outperform those that do not.

As an example, the report noted the priorities of the past—reducing cost, driving growth, reducing inventory, and improving service and quality—have been joined by three new priorities—increasing resilience, improving sustainability, and growing responsiveness to customer expectations.

As a result, supply chain investments are changing. When asking survey respondents what priorities were in the past past three years compared to what they anticipate in the next three years, the following increased in their priority:

• Increasing flexibility, from 33% to 50%
• Increasing resilience, from 30% to 40%
• Increasing speed, from 21% to 23%
• Embedding digital and tech, from 12% to 21%
• Sustainability, from 12% to 15%.

Conversely, the following showed a decrease in priority:

• Reducing cost, from 50% to 39%
• Improving customer service, from 28% to 26%
• Quality, from 19% to 10%

“The reality is that it simply won’t be feasible to make a supply chain 100% resilient, sustainable, responsive, and still cost effective,” the report noted. “That said, making only incremental changes won’t be sufficient to compete. Reinventing supply chains for the new world order clearly requires making more complex trade-offs than most operations teams have ever encountered.”

The report said that successful supply chains of the future will be:

• More flexible
• More “split-shoring”
• More visibility into the whole chain
• More circular

Starting from scratch

Trade-offs were easier in the past, where supply chains simply balanced economics and service levels, the report said. In today’s world, these trade-offs are more complex and often are in conflict with each other. That is resulting in more end-to-end analysis where supply chain designers are “starting with a blank sheet of paper and an unconstrained approach.”

Often, cross-functional teams are involved in the process as more organizations deviate from past siloed approaches to the supply chain.

“Whether redesigning a product for longevity and reuse or launching a new business model, we find that the best way to solve a challenge of this magnitude is to break it down into smaller, more manageable pieces,” the authors wrote. “Leading companies run what we call micro-battles: They take a microcosm of the overall problem (for example, one product line or SKU) and assign a small group of their best people to try and solve it in a short, defined window of time. The team works to rapidly bring strategic choices to action and formulate ways to scale the results.”

The authors also advised organizations to build the operations team’s skills in strategy and cross-disciplinary collaboration, and to work more closely with suppliers, customers and other partners.

“Leadership teams can position their companies for success and market share gains by anchoring actions in a well-defined strategy to differentiate their supply chain. That will help them manage the competing trade-offs at each fork in the road of their supply chain reinvention journey. They’ll come out the other side operating on a different performance curve,” the authors conclude.

SC
MR