Bringing Resilience to the Supply Chain, A Worthwhile Trade-off

By Rahul Guhathakurta

Cover Image Attribute: Hamburg Port, Image by Niklas9416 from Pixabay 

Supply-chain planning has been thrown into disarray due to massive fluctuations in global demand and supply and exponential levels of unpredictability across supply networks. In addition, nobody is sure how purchasing habits will be governed following the post-COVID-19 emergence and occurrence of extraordinary events such as the Russo-Ukrainian war. However, by incorporating greater flexibility and resilience into working models, businesses can fine-tune innovative software solutions to mitigate the future dangers of supply-chain shocks.[1]

It is evident that the supply chain is under attack, and supply chain planning software is nearing its limits. Unfortunately, solutions were not developed in anticipation of such exceptional times. Each supply-chain software solution has more or less comparable capabilities and outperforms the competition in a particular field or industry setting. However, none of them provide a comprehensive solution to the COVID-19 dilemma, nor do they create the stage for another apocalyptic event of comparable magnitude (such as the current Russo-Ukrainian conflict). Therefore, it reaffirms the importance of most enterprises having more resilient supply chains in place.

On the surface, Russia does not appear to be as important as other countries, such as China, in intricate global supply networks. However, when you look outside direct suppliers, the situation becomes considerably more complicated. Therefore, visibility is one of the essential pillars of a resilient supply chain, and it should be available throughout the entire chain.

Then there's the bull-whip effect to contend with. Today, client stockpiling has resulted in shops having excess or scarcity of products on their shelves. Historically, such erratic demand was noted at upstream supply chain nodes like distributor warehouses or regional hubs. However, this effect is now manifesting itself at the point of sale, with violent fluctuations in demand following the whip through the supply chain. Given such unexplored levels of uncertainty, algorithms cannot tell us how much stock to retain at specific nodes.

However, with a bit of forethought and the adoption of new working methods throughout the business, supply-chain planning tools like SAP APO, SAP IBP, Oracle SCM Cloud, Oracle VCP, and Kinaxis can be fine-tuned to operate in the face of increased market volatility. And to gain a better understanding of where risks are located, the implementation of "control towers" driven by artificial intelligence/machine learning and advanced analytics are required to give real-time data visibility, proactive alarms, prescriptive insights, and self-driving execution. These control towers can detect suppliers and commodities that increase risk levels within your direct supplier base and your supplier's extended network (i.e., your supplier's suppliers).[2]

As lockdowns are being lifted and life is limping back to normalcy, demand is returning. The need for some goods and services is getting revived promptly in particular supply chains (V-shape recovery). And many of them see a more gradual return to normalcy (U-shape recovery). In contrast, others experience a series of step adjustments as demand returns to its previous level (step recovery). However, traditional supply lines are being disrupted by the situation in Ukraine, highlighting the importance of logistical flexibility in the design of global supply chains. Most businesses were already coping with complicated logistics difficulties such as port congestion, container shortages, extended lead times, and record-high ocean freight charges even before the crisis began. We are experiencing further interruption as a result of this conflict. Increasing gasoline costs adds to inflationary pressures across all modes of freight transportation. 

There will almost certainly be a shift away from "just-in-time" manufacturing and toward accumulating stocks, i.e., building inventories. With such an uncertain backdrop, businesses will need to prepare for the worst-case scenario and may opt for a "supply chain plus" strategy.[3] In exchange for resilience, this approach compromises efficiency, which may be a worthwhile trade-off considering the potential of more pandemics and geopolitical tensions in the foreseeable future. 

And speaking of it (the future), the supply chain will be a game-changer for most businesses. Even the most successful companies will compete on their ability to service clients wisely and ethically. This was true before the pandemic's onset and current geopolitical volatility, but it is considerably more accurate now. Firms must understand their supply chain ecosystem's current resilience level and conduct continuous stress tests both upstream and downstream across geographies.

About the Author:

Rahul Guhathakurta (ORCID: 0000-0002-6400-6423) is a strategic management consultant and is currently affiliated with Anaha Innovations — an Ahmedabad-based technology business incubator and private equity firm. Also, he is a primary investor in IndraStra Global — a US-based publishing company.

References

[1] Global supply chain risk and resilience | VOX, CEPR Policy Portal. (2022, April 6). Global Supply Chain Risk and Resilience | VOX, CEPR Policy Portal; voxeu.org. https://voxeu.org/article/global-supply-chain-risk-and-resilience

[2] Russia-Ukraine supply chain impact | Deloitte Insights. (2022, March 25). Deloitte Insights; www2.deloitte.com. https://www2.deloitte.com/xe/en/insights/focus/supply-chain/supply-chain-war-russia-ukraine.html

[3] Jordan L. Strauss, Megan Greene (n.d.). Contingency Planning for Geopolitical Supply Chain Shocks. Duff & Phelps; www.kroll.com. Retrieved April 23, 2022, from https://www.kroll.com/en/insights/publications/contingency-planning-for-geopolitical-supply-chain-shocks