The Road Ahead: A stronger focus on the value chain is needed in a post-pandemic world.

By Mike Croza

If adversity makes you stronger, then the C-Level will feel revitalized as COVID-19 fades from our daily lives. Over the past two years, the repeated challenges thrown at the industry have built up a muscle that many have taken for granted for far too long. Managing a supply chain before the pandemic seems almost easy by comparison.

While the industry faced challenges before COVID-19, there wasn’t as much urgency to solve them. Politics and country of origin issues would crop up from time to time, but they would be short-lived. In the C-suite, three-to-five-year business strategies often gave way to new three-to-five-year plans without yielding much change.

It seems hard to believe today, but pre-pandemic, companies could count on stable lead times across supply chain nodes. Few worried about whether they could find the people, space and transportation logistics, particularly shipping containers, to keep the chain moving. No one dares be that complacent today.

Supply chain executives must now look to a new future, where labour shortages, inflation and other issues are the norm. Here are a few areas to keep a close eye on:

Labour shortages
Although labour shortages are being felt across the economy, the issue is particularly acute within supply chains. Not only are drivers retiring by the truckload, but few younger workers aspire for jobs behind the wheel or in a warehouse to support their families. And the people they can hire cost more. With businesses desperate to retain staff and workers feeling the pinch of runaway inflation, we can expect to see a resurgence in the unionization movement in this employee-driven market.

Inflation
Inflation, which is expected to stay high for some time, isn’t only causing employees across the supply chain to seek better compensation; surging prices are wreaking havoc on demand as consumers cut back on spending. As a result, supply chain planners are finding it more challenging to estimate how much merchandise to stock. Inaccurate forecasts either mean running out of in-demand products at inopportune times or stockpiling goods.

Commercial real estate
If you do have to stockpile goods because of a change – or a misread – in demand, then you’ll need to find a place to hold everything. At the same time, growing unreliability with supply chains has prompted some companies to stock more components and finished goods. In the GTA, one of North America’s largest markets, only 1% of ready-to-go distribution real estate is available. Prices, which are already in record territory, will be driven even higher by real estate scarcity.

Geopolitical instability
Conflicts are nothing new on the world stage, but they seldom create deep divisions between superpowers. The war between Ukraine and Russia has opened a rift in Europe, disrupting food and energy supplies and forcing ships and air freight traffic to take long circuitous routes. Cool relations between the West and China and its aggressive approach to COVID have exposed businesses that have relied on Chinese suppliers.

These headwinds will have an outsized effect on how companies grow and protect their market share, with some players needing to redesign, if not rebuild, their supply chains to remain effective. If the surge in the number of Chief Supply Chain officer roles over the past year is any indication, those three-to-five-year plans that were once sloughed off will be taken more seriously.

The focus will shift to integrated end-to-end business understanding, planning and execution, leveraging appropriate metrics that reflect a “balanced scorecard.” But there will be trade-offs. For manufacturers, it will be a question of just-in-time manufacturing efficiencies versus building inventories and dealing with the associated costs and impacts. For companies in the finished goods and consumer goods market, those plans will need to contend with higher carrying costs of holding that inventory before it gets to market and higher storage and labour costs.

Downstream, where inventory is deployed, companies may need to trade off investments (and related costs) to support sales and revenue and focus more on time in full (OTIF) delivery and customer satisfaction. Amazon is a superb example of how to build capabilities into a powerhouse marketplace supported by a well-oiled supply chain and execution. As a Prime member, if I order a book with next-day delivery, I receive it. I will have paid more, but the convenience and experience keep me coming back for more.

In many ways, success today means getting back to basics. Here’s how to do that:

Develop a robust business strategy
We are often surprised by how many companies we work with don’t have a robust three-to-five-year business strategy, which would help drive behaviour for the rest of the company. It’s up to ownership and senior leadership to fill this gap.

Designing an optimal supply chain starts with the business strategy, which might pit resilience and agility against higher costs and efficiency. No matter how those factors balance out, they will impact the end customer either by poorer service or higher prices.

Leaders must also think beyond the supply chain and prioritize the value chain, which looks beyond simply producing and distributing a product. Effectively managing your company’s value chain involves careful decisions and taking a stand on investment.

Integrate end-to-end planning and have meaningful metrics
Creating an integrated value chain starts with strategic thinking. It means breaking down silos and aligning your processes, people and tools with your business objective.

For instance, what may be good for sales could be a manufacturing and distribution headache, resulting in cost overruns from overtime, expedited and premium-priced raw materials, or services. These issues can narrow margins by impacting the cost of goods sold. You then risk losing consumer loyalty as people seek more affordable alternatives.

Another challenge is that finance and supply chain teams are often out of sync when defining business operations. Collecting data points that are not only wrong, but also have little meaning to the business, compounds the problem.

For example, merchandise teams may look at sales revenue from a distribution centre and fail to understand how product mix might affect operations. In these situations, you may see leadership pushing a seasonal sales target comprising big, bulky, hard-to-handle and store product types, which hobbles distribution and operations for throughput and productivity. The result? The company does not meet its distribution centre management targets and then gets penalized for being unable to service the business.

Capability for continuous planning, visibility and what-if modelling
When it comes to supply chain management, companies have been forced to up their game. More rigour and rules need to be in place when it comes to continuous forecasting and short-term horizon planning.

A focus on consumption is also an emerging philosophy. Sharing partner data, and on a timely basis and in a usable format, has always been a key best practice, but it’s no longer enough. Working with consumption-based data can help companies avoid the bullwhip we are seeing post-COVID on lead time extension and logistics capacity issues.

Innovation is often the antidote to adversity, and many businesses will be looking for new supply chain solutions. Amid rising labour shortages and a lack of skilled talent, there will be pressure to embrace automation, whether in offices or distribution centres.

Despite all that’s happened over the past 30 months, most of our clients are adapting and thriving. We’re helping our clients not only rethink their value chains but unlearn what they’ve done in the past. True innovation, collaboration and a solid game plan aren’t just something you read in a business book, they also must be put into action.