June 3, 2016
Supply chains face increasing levels of risk and volatility. As economic change accelerates and varieties of threats and risk grow, supply chain leaders continue to play a global game of whack-a-mole that can have significant repercussions in the event of a disruption or production lapse.
Shifting regulations, moving cost structures, facility conditions, labor issues … the risk checklist goes on, and includes a plethora of types and sources.
To combat these risks, Gartner’s Stan Aranow and Kamala Rowan explained the importance of supply chain network design and execution in driving growth and creating reliable service.
Design can not only be a deflective shield to battle risk, it can be a competitive weapon to break into new markets. Supply network strategy should cascade down from corporate strategy. Often, supply chain design exists in a silo, removed from larger business goals. It’s important to take into account what’s deemed a priority to the organization. From there, supply chain leaders can tie network design and execution to that greater strategy.
For example, a food company is performing well in existing channels and needs to maintain service levels there. But in certain stores, the brand name isn’t as important as low prices, and the food provider needs to deliver low-priced goods to meet customer demand. This may call for a different supply chain for that customer segment. This outside-in perspective should be the starting point. From there, the company can build the necessary characteristics into its supply chain. This is also a good method to diversify against risk.
Risk strategies tied to priorities
The forms of supply chain risk that exist today vary greatly. There may be cases where security, protection of intellectual property, or rising costs are the top priority. These strategic priorities need to be addressed and reflected in the supply network. Picture the different needs and ways of executing if the top-level strategic focus shifts to something else, say knowledge capital protection, physical security, or raw materials risk. These are very different challenges that call for different supply network strategies. The ability to operate with agility and make shifts rapidly is critical to success.
The same holds true when addressing different industries. Balancing cost, speed, and service is a challenge in itself. But the dynamics, parties, and risks vary by industry, requiring custom design and execution to truly optimize the supply network.
High tech: Customer proximity is the priority. Network ecosystem is sought closer to the customer to avoid lost sales. This leads consumer tech companies to look at suppliers and distinguish key suppliers from the high-volume network.
Life sciences: Regulatory compliance is a priority. Resilience is needed to support fragmented laws and rules that can hinder growth in emerging markets.
Industrial manufacturing: Supplier compliance is a challenge that requires attention, especially when dealing with high-volume goods.
Trading partner risk is a major challenge to consider. A shortage of key components can wreak havoc on production. In instances where a bottleneck supplier exists, supply chain organizations should consider ways to obtain deeper commitment from the supplier, such as an alliance strategy. It’s important to look at commodity suppliers that may be critical network nodes. Examine partners and manufacturers to determine how to expand or adjust the network. The ability to be agile is essential in profitably meeting demand, delivering on service levels, and keeping risk at bay.
Three network design and execution tips from Gartner:
- Network design and execution strategies have to reach back to corporate initiatives
- Consider the latest cost and ease of doing business in a region
- Look at critical risks such as geopolitical, water shortage, material or labor cost, social unrest, customer delays, port congestion, theft of parts, and intellectual property
— Bryan Nella, senior director of corporate communications at GT Nexus, an Infor company