Resilient Supply Chains are now a Competitive Advantage

Resilient Supply Chains are now a Competitive Advantage

We just got through the biggest health and supply chain disruption since WW2. As we move through the pandemic, the global Supply Chain is struggling to recover. Companies are challenged with limited raw material availability, extended lead times and transportation delays.  Their competitors, that have been able to keep or get product in stock, are capturing market share.  

Since approximately 1990, with the advent of the Lean / Toyota Production System, and when supply chain management became a “thing”, supply chains have gotten leaner. However, they have potentially became less resilient.  Having a Lean Supply Chain was required to drive down costs and complete for customer demand. However, now resilient supply chains are the competitive advantage. Low cost is less important than meeting the customer demand. 

A big shift is about to happen which will change the physical structure of supply chains including more capacity, warehouses and inventory.

A summary of basic supply chain designs can help you design the right supply chain for both your market and potential disruptions. 

Lean

Focus: Asset efficiency

Measures: inventory turnover, equipment utilization

Toyota advocated reducing waste, including any excess inventory.  Manufacturers operate with less purchased components/materials and work-in-process to drive cash-flow efficiency.  While beneficial for costs, these supply chains are most susceptible to disruption. 

Fast
Focus: Fast delivery to customers

Measures: Fill rate, Delivery days, Leadtime

The fast supply chain puts the focus on getting product in the hands of the customer. We can all thank Amazon for reimagining the supply chain for ecommerce.  If Toyota thinks surplus is non-value-added, Amazon thinks a customer not buying a product because they would have to wait too long is non-value-added.  These supply chains are inherently resilient but have more inventory and are more asset-intensive during times of low disruptions.  Amazon lost money on its key distribution business for many years to build up a fast supply chain network. 

Reliable
Focus: Meet customer expectations

Measures: On-time in-full (OTIF), Quality

Reliable supply chains are not the fastest or lowest cost but seek to meet customer expectations.  If they quote a 1 week leadtime, customers have learned that they will get everything they need in 1 week and that it will work.  There has been less focus on these attributes as all supply chains have gotten more reliable… at least before the pandemic.  Now, this capability is in demand.  

Agile
Focus: React to market changes

Measures: Capacity-flexibility, New product development cycle time, % of sales from products introduced in last 3 years

Agile supply chains can spot trends and adjust.  They will use their supply chain partners, such as contract manufacturers and third-party logistics (3PL) providers to increase or decrease their fulfillment capability.  They invest in new product development and development of their supply chain partners.  Apple would typify this supply chain.  They down own most of their supply chain but they exert incredible control.  This type of supply chain is more expensive during times of steady demand but can react quickly if demand increases or decreases without having high fixed costs.  These supply chain are inherently more resilient to supply chain disruptions because of their investments in their supply chain’s capabilities.  

We do not know what will happen in the future, but we have seen the power of resilient supply chains and the challenges faced by lean organizations.  Organizations that were hit the hardest the supply chain disruptions are focusing more on managing their supply chain risk.