The Elephant in the Room: Black Swan Disruption
Prior to the COVID-19 pandemic, 70% of executives expected to increase their company’s resilience by rebalancing their supply chains. By May 2020, an overwhelming 93% reported they plan to take steps to make their supply chains more resilient. The pandemic has pushed supply chains to the top of the corporate agenda where C-level executives everywhere are rethinking On top of financial losses, there is an additional risk of permanently losing market share to competitors who are able to sustain operations or recover faster, along with the costs of rebuilding damaged physical assets. It could also cause managers to become more dependent on trade or force them to undertake expensive adaptations. Weaknesses are often perceived as stemming from the structure of supplier networks in a given chain. But, that’s not completely true.
A company’s supply chain is defined by its first tier of suppliers, and some managers include the suppliers of those suppliers — the second tier. Their effectiveness is validated by the paths they forge responding to the emergence of bottlenecks throughout the supply chain. The effects of their actions are whether or not the supply chain delivers what the consumer wants. It’s typical for managers to have their performance-review metrics center around: In addition to how managers are incentivized through revenue growth, market-share gain, productivity gain, cost cutting, etc., resilience not only helps with disaster preparedness, but also for overall organizational performance.
Some managers are demonstrating that flexible and resilient supply chains can deliver more than productivity improvement where they generate new value and profitable growth in the long term. However, they are the outliers. Since 2000, the value of intermediate goods traded globally has tripled to more than $10 trillion annually and as much as 45 percent of one year’s earnings could be lost each decade because of disruptions.
For example, algorithms can be used to automate pre-building inventory when there is excess capacity and sufficient warehouse space prior to a constrained week. Other decisions, however, require human intervention and judgement such as those involving complex and ambiguous tradeoffs and high levels of creativity.
Proactive and forward thinking While we know how to measure efficiency, the critical question is how to measure resilience. Analytics and artificial intelligence are powerful tools to unlock value, with amplifying effects across the physical and digital worlds. But without the right mental model in place, they may accelerate and even exacerbate existing problems such as uncoordinated processes, capability gaps or technology mismatches..
Managers experience new levels of supply chain performance by integrating Social Technology through the supply chain nerve center. This nerve center works with supply-chain partners fostering agreement on appropriate standards and protocols and supports all the partners in execution matters. Most importantly, the nerve center has been psychologically stress tested enabling consistent execution and sound decisions. Psychological stress-testing the supply chain is an important starting point for evaluating agility and building an action plan because if people aren’t resilient, the supply chain can’t be resilient. Managers can identify appropriate mitigation steps because the stress test revealed potential vulnerabilities along the supply chain.
If supply chain partners could work together to overcome barriers — including common operating standards, trust, and appropriate gain sharing — they could significantly reduce costs by improving resilience through Social Technology. Trust is the determining issue for partners from two perspectives. Internal information may be too sensitive to share and because of the sensitivity, a common understanding of the value of the data may not be agreed upon. These limitations may never be resolved. However, common ground is found when partners work as a team through Social Technology allowing them to form a stronger bond of trust.
The primary objection to Social Technology adoption is, “Why would I invest in something that’s not going to make me more productive today?” However, this is a false choice. Adopting Social Technology delivers immediate performance benefits in other facets of the business other than the supply chain focus. It’s clear managers can’t afford not to invest in Social Technology.
Written by Stephen Long, PhD
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