Managing global supply chains is like navigating a turbulent sea with unpredictable currents and sudden squalls. Supply chain managers often struggle to react to unforeseen disruptions caused by imbalances in supply and demand. Recent years, marked by a global pandemic, have seen heightened geopolitical tensions, complex macroeconomic dynamics and extreme weather, exposing vulnerabilities in even the most well-oiled operations. Yet, amid this turmoil, some companies not only have weathered the storm but also have capitalized on disruptions to strengthen customer relationships and gain market share. How have they accomplished this?
Supply chain disruption as a growth opportunity
“Sweet are the uses of adversity,” Shakespeare wrote. In the realm of supply chain strategy and management, this adage rings true. Industries are increasingly challenged with frequent supply chain disruptions. These disruptions can be due to a sudden decline in the availability of production inputs, unanticipated shifts in demand or transportation delays that inhibit timely fulfillment of customer orders. These disruptions bring risk, higher costs and lost revenue for some. They also create opportunities for industry leaders to accelerate growth by outmaneuvering competitors.
Take, for instance, the recent global semiconductor chip shortage that crippled many industries. For Taiwan Semiconductor Manufacturing Company Limited (TSMC), the crisis was a springboard. By skillfully navigating a complex geopolitical environment, aggressively investing to move production capacity closer to customers and leveraging flexibility in its supply chain, TSMC capitalized on soaring demand for its products and solidified its position as the world’s leading chipmaker. Another example of a company that rose to the challenge during a period of disruption is Moderna, one of the world’s leading biotech firms. Moderna leveraged its deep mRNA expertise to develop a COVID-19 vaccine and bring it to market in less than a year by rapidly scaling a vast manufacturing and distribution network. The company helped save countless lives and catapulted to the forefront of the pharmaceutical industry.
TSMC and Moderna are two examples of industry leaders that excelled during periods of disruption. While others battened down the hatches and focused on maintaining business continuity, these companies saw the opening to leverage competitive advantages to address industry challenges and better serve their customers.
New mindset: Supply chain management as a strategic differentiator
Recent crises highlighted the fragility of global supply chains. Inflexible supply chain networks, cumbersome processes and outdated information systems hindered companies’ ability to respond quickly to disruptions. Supply chain managers reacted by scrambling to improve their supply chain resilience. They reconfigured networks to reduce dependency on individual suppliers.
Supply chain managers brought manufacturing processes onshore and closer to distribution. They increased inventory levels in anticipation of future shortages. Additional carriers were contracted to provide access to alternative shipping lines. All these changes added redundancy and, of course, cost. With supply chain pressure at historic highs, many companies viewed this cost as a strategic necessity, as insurance premiums paid to prepare for anticipated future disruption.
Fewer than 10% of industry leaders, a recent Gartner survey found, strive to go beyond resilience to build supply chain management capabilities that will offer a strategic advantage when competitors struggle. Their goal is to build supply chains that are “anti-fragile” and that can thrive during periods of disruption.
Industry leaders who strive to go beyond resilience have adopted a new mindset regarding the role of the supply chain in shaping and enabling corporate strategy. Supply chains do more than provide efficient and reliable procurement and the manufacturing and distribution of products and services. Superior supply chain management during troubling times is a growth strategy.
Supply chain executives who have adopted this mindset live by the adage, “Everyone is in sales, and everyone works for finance.” They understand how every decision they make, from sourcing to distribution, affects revenue and profitability. They are focused on profitably providing superior customer experiences during periods of disruption. The primary objective of supply chain management is not just to minimize cost of production and distribution. Managers of anti-fragile supply chains drive growth by anticipating disruption, predicting the impact on their organization and competitors. They are able to execute corrective actions faster than competitors to better serve customers and win business. And they proactively collaborate across functions to shape product design to enable agility, so the company has an advantage when there are sudden changes to supply and demand.
In short, anti-fragile supply chain managers enable competitive advantage. They are in the growth business.
3 sources of competitive advantage to capitalize on supply chain disruption
Industry leaders that thrive during periods of supply chain disruption share common characteristics. Supply chain managers in these companies understand that supply chain uncertainty is inevitable. No one has a crystal ball. Just as predicting the future is impossible, creating a perfect forecast is also not possible. The goal isn’t to eliminate uncertainty but to instead understand it and move faster than competitors to capitalize on disruption. Speed in decision-making and execution comes from three sources of competitive advantage.
1. Superior value chain visibility. Anti-fragile supply chain managers are obsessed with market and supply chain data and insights. Data is the lifeblood of a resilient and agile supply chain. Supply chain managers who can sense deviations from supply and demand plans due to unexpected disruptions and who can do this faster than competitors can react more quickly.
A notable example of a company that invested aggressively to improve the visibility of value chain changes is Lenovo, which uses AI and machine learning to sense, predict and preemptively mitigate disruption. Lenovo Supply Chain Intelligence (SCI) is an AI-powered solution that continuously analyzes data aggregated from more than 800 sources to sense risk in a network of more than 2,000 suppliers around the world. More than 70% of Lenovo supply chain employees use SCI to accelerate and improve decision-making.
Companies like Lenovo use advanced analytics to move beyond making decisions based on anecdotes or gut feelings. They gather and analyze data to enable real-time visibility of continuously updated demand forecasts, inventory levels, transportation routes and supplier performance. They gather data to understand how disruptions affect competitors and how the competition responds to them. They then use AI to capitalize on this superior visibility by modeling different scenarios and optimizing mitigation actions to avoid excess inventory, stockouts and shipment delays.
2. Collaborative and strategic partnerships. As it is often said, “It takes a village.” To capitalize on a disruption, supply chain managers often need to coordinate responses across their value chain. Suppliers enable agility by providing flexible production capacity and supply. Distributors enable agility by optimally managing fixed product inventory levels and helping shape demand. Cultivating strong, collaborative relationships upstream and downstream in the value chain based on trust, transparency and mutual benefit is crucial for navigating disruptions. This means moving beyond transactional relationships with partners and investing in open communication, joint planning and even co-innovation.
When the COVID-19 pandemic hit, companies with strong supplier relationships could secure critical components and materials, while others struggled with shortages and delays. For example, packaged food companies needed to shift quickly from shipping products in bulk to restaurants and schools to shipping products to retailers in smaller packages that could be consumed at home. This industrywide shift in demand led to a shortage in paperboard packaging. Kellogg’s leveraged strategic partnerships with paperboard suppliers to ensure it could ship its most in-demand SKUs, enabling the company to capture share and increase sales 7% in the first year of the pandemic.
3. Integrated business execution (IBE). In recent years, many companies implemented processes to coordinate planning across functions to align production schedules with demand plans and set financial targets accordingly. Investments in IBE enabled efficiency by coordinating plans across functions using shared planning platforms. Unfortunately, for some companies, integrating planning decisions has not yielded agility in times of disruption for several reasons.
First, for many companies, while planning decisions are coordinated across functions, execution is still managed in organizational silos. Boxer Mike Tyson famously said, “Everyone has a plan until they get punched in the face.” When supply availability suddenly drops or demand shifts unexpectedly, in many companies, functional leaders tend to retreat to their corners and focus on their individual KPIs, leading to suboptimal decisions for the enterprise.
Second, in many companies, integrated planning processes tend to flow “one way.” Demand forecasts are considered fixed, and demand and supply plans are set accordingly. The goal is to ensure production schedules provide what sales and marketing teams intend to sell. Rarely do these processes flow the other way to promote products with sufficient supply. Industry leaders who capture share in times of disruption address imbalances in supply and demand with coordinated sourcing and demand-shaping actions. They integrate execution across the business to capitalize on market opportunities where the company has a competitive advantage.
By integrating planning and execution across functions, industry leaders enable agility and allocate resources to benefit the entire business. For example, when a natural disaster disrupts a key supplier that provides inputs to multiple competitors, companies who coordinate decisions to find alternative sources, adjust production schedules and adjust pricing and promotion for substitute products until the disruption subsides are able to capture a greater share of customers’ wallets.
Investing in these three sources of competitive advantage—value chain visibility, collaborative and strategic partnerships, and integrated business execution—helps supply chains become more resilient and grow stronger in periods of disruption by enabling agile decision-making and superior customer experiences.
Add insights to your inbox
We’ll send you content you’ll want to read – and put to use.
