From Organic to Planned: The Biggest Way to Build a Resilient Supply Chain

Supply chains have always been risky, from the silk road to today’s modern shipping lanes. COVID or not, a ship can get stuck in the Suez Canal at any time. Today we are faced with a confluence of disruptors, including COVID, rapid increases in consumer sentiment, new competitors and models, and political instability around the world.

Inflation is reflecting these changes and challenges, as many supply chains have been stretched to capacity, exposing a lack of agility in some cases and outright inflexibility in others. Consider that in the first few months of 2020, SAP reported a 149% rise in online shopping. That dramatic shift in consumer behavior adds multitudes of stress to a system not necessarily designed to keep pace. 

In the past few years, we have learned that we need a good offense, not just defense. PWC concurs. They recommend shaping a supply chain strategy focused on “disruption avoidance and sustained performance that remains agile and operations focused”. In other words, a resiliency offense. A resilient supply chain means weathering the storms of change and bouncing back. 

I believe the top resiliency strategy for suppliers will be moving from organic to planned growth. This shift in thinking means more contextual decision making and better execution analysis.

Most supply chains grew organically out of necessity, beginning with a product design and working backward to sourcing materials. Imagine Henry Ford making cars for the first time, and sourcing rubber or steel. He probably made most of his choices primarily based on quality and cost. But what happened when his source of rubber tripled their prices? He found another vendor. This is reactionary, and instead of building resilience it builds reliance and knee-jerk reactions. Many manufacturers and retailers don’t have a strong sense of their total landed cost. 

If he were implementing a “planned” supply chain, Ford would have instead asked himself how his suppliers might buffer him from greater forces – and make choices that build resilience and redundancy. Topics for discussion include location, alternative supply, modal choice, and the political climate, among others, but still with cost analysis as a driver.

To begin, we recommend starting with a first-principles analysis. This involves breaking a problem down to its most essential elements and working forward from there. It’s a way to reshape what already exists, as many of the things in our world – primarily complicated systems – grew organically versus in a planned manner. 

Ask yourself: What would your supply chain look like if you were to rebuild it from scratch? How much waste could you remove? Are your relationships logical? How can they make you more resilient? What fallbacks are viable? Would you be using the same suppliers in the same manner?  Would you re-source or near-source? This is one reason the concept of circular economics is gaining traction – as you reduce complexity in the system, you gain resilience.

Let’s look at a real-world example. Historically, import and truckload volumes have been closely linked, representing a good proxy for freight demand. In 2020, we saw a significant increase in import volumes, yet truckload volumes did not support the increase in imports. We believe the weakness in truckload volumes is driven by labor, equipment constraints and inefficiency. Because of truckload’s inability to support this demand, retailers face historically low inventory levels. 

While we may not be able to predict a global pandemic, we can strive to build supply chains that favor resilience in the face of disruption. The rest of this series will explore a few ways how – from developing consistent carrier relationships, to optimizing warehouse operations and every load. 

Hopefully, the future will yield more resilience as we learn from the past few years and integrate those learnings into stronger supply chains that can withstand a pandemic or beyond. It will require a hard look at those organic chains, and engineering more purposeful, planned ones for the future.

Frequently Asked Questions (FAQs)

1. What specific technologies or tools are recommended to facilitate the transition from organic to planned supply chain growth?

   Answer: Transitioning to a planned supply chain often involves leveraging digital tools such as ERP systems, supply chain management software, and data analytics platforms to enhance visibility and coordination.

2. How can companies measure the effectiveness of their transition to a more resilient, planned supply chain in terms of performance metrics or KPIs?

   Answer: The effectiveness of the transition can be measured by improvements in metrics such as reduced lead times, increased inventory turnover, and enhanced supplier performance.

3. What challenges might companies face when trying to shift from an organic to a planned supply chain, and how can they overcome these obstacles?

   Answer: Challenges in shifting to a planned supply chain include resistance to change, the need for skills development, and the initial investment in technology. Overcoming these requires strong leadership, training programs, and a clear strategic vision.