As 2021 comes to a close, most supply chains today are facing an unprecedented market dynamic: massive spikes in demand amid severe global gridlock. That global gridlock has a lot of causes, but at its core, the current situation is a consequence of an extended period of frequent, unfamiliar and high-impact risk events disrupting supply chains across industries and across regions.
Back in May, we published our Disruption Shaping research in which we defined the causal relationship between the cadence of these risk events and the feeling experienced by many CSCOs with whom we spoke. Their mitigation strategy, focused on improving their response times to these events, was simply being overwhelmed by the sheer volume of risks disrupting their organizations.
The present situation is a direct consequence of that increased cadence of events. The figure depicts the situation from the perspective of a single supply chain, but the present situation today is a result of not just a single supply chain in this situation, but nearly all of them. It's not just your supply chain trying to meet unprecedented demand, in addition to building up buffers and resilience, it's everyone else's, too.
CSCOs need to begin making three changes today to best prepare their organizations for what appears to be a sustained period of massive demand amid constrained supply.
Adjust the Supply Constraint Playbook for the Current Environment
As we've talked with supply chain leaders to discover what, if anything, new can be done to help supply chains navigate this environment, what we've mostly heard is that supply chain leaders are pulling all the smart, classic levers to navigate constraints.
That classic playbook for supply chain constraints is built upon the assumption that constraints are both temporary and isolated. Most of the time, the strategies can get them through a short, unexpected period of constraint. But the current context is marked by semi-permanent, or even permanent, constraints in some cases. And the constraints are widespread, not isolated.
That means the traditional constraint playbook for the supply chain is insufficient to respond to the situation facing supply chains today. Following only that playbook, supply chains can expect to find themselves in a very similar situation, or a worse one, months from now.
When supply chain leaders know the supply chain constraints are semi-permanent and widespread, rather than temporary and isolated, they must examine their end-to-end processes and look for opportunities to make adjustments now across supply chain functions and capabilities. Making those changes now can help improve their situation in six- to nine-months' time.
Improve the Organization's Flexibility and Constraint-Avoidance Capabilities
CSCOs must optimize for flexibility and avoidance of constraint in the future. Flexibility will help them adjust to unanticipated supply constraints and can be incorporated across functions. Supply chains can extend their time horizons for S&OP and S&OE. They should revisit their category strategies now and define trigger points for knowing when categories are at risk for long-term constraints. And they should invest in flexible capabilities, and then work with commercial and customers to use existing product whenever possible to meet customer needs given available inputs.
Avoidance enabled by good long-term planning also will help them maintain supply to meet demand in the longer term. Supply chains should reinforce constraint-based planning capabilities. They should become customers of choice in sourcing, manufacturing and logistics. They should also collaborate with product development and customers to adjust products based on components likely available for the long-term despite the constrained environment.
Reduce the Number of Events Disrupting the Supply Chain
Our recent research found that supply chains on average experience five high-impact, unfamiliar disruptions each year from 2019. We also found that most supply chains focus on improving their responses to these events, leveraging agility, visibility and resilience to do so.
However, the high cadence of these risk events disrupting supply chains has overwhelmed their response strategy. To better navigate this highly volatile risk environment, CSCOs need to reduce the number of risk events that disrupt their supply chains in the first place.
They can do this by taking two key actions. First, they must integrate risks into their supply chain's strategy at the planning, not just the execution, phase. Second, they must optimize the surface area of the supply chain to reduce exposure both to a single catastrophic risk event, as well as its exposure to a high cadence of disruptions. They can leverage this activity for competitive advantage, as well.
Navigating This New Normal
With new COVID variants emerging, an increasingly inflationary environment on the horizon and an anticipated increase in the cadence and severity of climate-change related disruptive weather events, this environment is unlikely to pass in the next 12 to 18 months. Some of our clients predict even longer.
CSCOs must assess the current environment and determine for their organizations how temporary or permanent and isolated or widespread the constraints are that they're experiencing today. Based on that assessment, they will need to align with their enterprise partners on those assumptions and the scenario plans they choose to pursue to prepare. They must take a strategic leadership position to reduce the supply chain's long-term exposure to this environment, and to reduce the impact it has on their organizations.
Gartner Supply Chain