For many companies, supply chain excellence has long meant developing the most cost-effective way to deliver a product on time to your customers. While detailed modeling and analysis are often completed to design these “optimal” supply chains, it was usually only done for a relatively narrow range of supply and demand variability options. When the COVID-19 pandemic hit, many businesses learned the hard way how this tight focus limited their abilities to cope with a sudden shock to their supply chains. The pandemic has proven that the definition of supply chain excellence must be expanded beyond cost effectiveness and on-time performance to also consider supply chain resilience.
A resilient supply chain maximizes an enterprise’s ability to produce and move goods when business is booming while also avoiding potential disruptions by sensing and pivoting in response to changing conditions and unforeseeable variables. It senses when conditions and demands vary from the anticipated in real time. It pivots to nimbly change course in response to the unexpected. Further, a resilient supply chain will also use advanced technologies like artificial intelligence (AI) to push relevant data to people trained to interpret and act on the information thus reducing or perhaps even eliminating the impact of potentially calamitous supply chain shocks.
Companies need to evaluate how resilient their supply chains are in order to determine their strengths and vulnerabilities in light of unanticipated shifts and future crises. These evaluations or “stress tests” would resemble the banking stress tests that came into being due to the Great Recession and shifted banks’ focus away from short-term profit toward the long-term resiliency. These risk management exercises have helped the banking industry weather the current pandemic much better than it did the global financial crisis of 2008–2009.
The supply chain version of these stress tests would feed into the development of a plan that sets the course for improving supply chain resilience, with an emphasis on the flexibility needed in the uncertain times ahead. These stress tests would examine supply chain resiliency along a number of different dimensions, including geography, planning, suppliers, distribution, manufacturing, product portfolio/platforms, and financial/working capital. Let’s take a closer look at some of these key dimensions.
Planning
Our recent experiences of companies we have “stress tested” in two interconnected industries, consumer packaged goods (CPG) and retail, have shown that resilience can be particularly challenging to achieve in planning. Planning that occurs at an accelerated pace and utilized advanced technology can help companies navigate shocks to the supply chain. Most CPG companies, however, struggle to switch to accelerated planning (moving from monthly to weekly or daily planning), with nearly half being unable to do so for more than 40 percent of their total sales. They also are underleveraging technology for their planning efforts; only one in six use demand-sensing technologies or analytical tools for more than half of their sales. Retailers, too, have shown limited capabilities to switch to accelerated planning and are similarly challenged by underutilization of technology and tools.
Suppliers
Retailers and CPG companies also face similar difficulties in working with their suppliers. For example, having alternative sources of supply can help improve resiliency. By prequalifying possible alternative manufacturing providers, CPG companies could ramp up manufacturing in alternative locations during unexpected shocks or disruptions. However, the majority of CPG companies have prequalified unused manufacturing contracts for less than 20 percent of their core stock-keeping units (SKUs). For their part, many retailers have constrained their ability to be resilient by depending on a certain small pool of suppliers for the majority of a given category’s spend.
Supply chain resiliency can also be improved by increasing insight and visibility into downstream supply chain partners. While retailers have strong outbound logistics networks, they lack visibility and control of their inbound transportation networks—a group that includes their CPG partners! Both retailers and CPG companies have very limited visibility into their second-tier suppliers, which leaves CPG companies relatively blind to potential raw material disruptions and component shortages.
The high-tech industry also faces constraints in the supplier dimension that inhibit its resiliency. Companies in the high-tech industry face a somewhat unique supply chain challenge because most of their products are designed around a specific processor. Processors cannot be easily substituted once designed into a product, and since a design is typically employed for two to five years, supply chain redundancy alternatives will be limited. Fortunately, extensive effort is put into ensuring processor supply chain disruptions rarely occur (outside of instances of governmental intervention). Yet the threat of catastrophic supply interruption is real, as companies worldwide have shifted their manufacturing to China—initially for cost reasons, and now because of the vast high-tech ecosystem that has been developed there.
Accentuating the risk posed by the single-country component ecosystem for the high-tech industry is the prevalence of contract manufacturing, which has become standard practice in the high-tech industry. Now, most high-tech companies lack visibility into the base of component suppliers. Even those high-tech companies that source key components themselves rarely focus on components beyond the top 20 or so of their bill of materials. Instead they rely upon their manufacturing partners to manage that portion of spend and any supply visibility and/or delivery challenges that may exist. This creates a major risk not only for the company but also for the entire industry. Increasingly, it will also create risks for the many other industries that rely upon high-tech, including automotive, consumer, medical, and industrial.
Geography
We know that every border that has to be crossed to move raw materials, components, and finished goods introduces any number of risks for the supply chain. Selling in the same country where you manufacture thus reduces risk for some percentage of your sales. This strategy has been a boon to those companies that sell their products in the low-cost countries that they have come to rely on for goods production.
Product portfolio/platforms
Another way to reduce risks and supply interruptions is by designing and making simpler products that use relatively few parts or components. Similarly—though it sounds counterintuitive at first—products designed and built with ingrained software can actually reduce manufacturing complexity by making it possible to modify the built-in functionality of a product with the flip of a virtual switch. Under this strategy, customers pay only for the features that they value, increasing product flexibility and sales options without increasing manufacturing complexity—essentially, this brings the “software-as-a-service” business model into the physical world of objects like automobiles and appliances.
Working capital
Finally working capital can be wielded as a strategic weapon and help increase resilience in the supply chain. It can be used to lock in supply by, for example, using it to make mass buys of raw materials or of common components that are used across a company’s products. It can even be used to lock in suppliers through strategic supplier management efforts such as investing in a key supplier’s capabilities and facilities.
Overcoming constraints and identifying opportunities
Clearly, traditional approaches to supply chain management are no longer sufficient. Cost and performance remain important, but it is also critical to identify opportunities in the supply chain to reduce risk exposure through increased flexibility and redundancy. The supply chain strategy must evolve if we are to take any positives away from the COVID-19 pandemic and emerge stronger, more competitive, and better able to thrive when faced with the next crisis.
Supply Chain Xchange Executive Editor Susan Lacefield moderates a panel discussion with Supply Chain Xchange's Outstanding Women in Supply Chain Award Winners (from left to right) Annette Danek-Akey, Sherry Harriman, Leslie O'Regan, and Ammie McAsey.
Supply Chain Xchange recognized four women who have made significant contributions to the supply chain management profession today with its second annual Outstanding Women in Supply Chain Award. The award winners include Annette Danek-Akey, Chief Supply Chain Officer at Barnes & Noble; Sherry Harriman, Senior Vice President of Logistics and Supply Chain for Academy Sports + Outdoors; Leslie O’Regan, Director of Product Management for DC Systems & 3PLs at American Eagle Outfitters; and Ammie McAsey, Senior Vice President of Customer Distribution Experience for McKesson’s U.S. Pharmaceutical division.
Throughout their careers, these four supply chain executive have demonstrated strategic thinking, innovative problem solving, and effective leadership as well as a commitment to giving back to the profession.
The awards were presented at the Council of Supply Chain Management Professionals (CSCMP) annual EDGE Conference in Nashville, Tenn. In addition to the awards presentation, the leaders discussed their leadership philosophies and career path during a panel discussion at the EDGE conference.
The surge of “nearshoring” supply chains from China to Mexico offers obvious benefits in cost, geography, and shipping time, as long as U.S. companies are realistic about smoothing out the challenges of the burgeoning trend, according to a panel today at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
Those challenges span a list including: developing infrastructure, weak security, manual processes, and shifting regulations, speakers said in a session titled “Nearshoring: Transforming Surface Transportation in the U.S.”
For example, a recent Mexican government rail expansion added lines to tourist destinations in Cancun instead of freight capacity in the Southwest, said panelist Edward Habe, Vice President of Mexico Sales, for Averitt. Truckload cargo inspections may rely on a single person looking at paper filings on the border, instead of a 24/7 online system, said Bob McCloskey, Director for Logistics and Distribution at Clarios, LLC. And business partners inside Mexico often have undisclosed tier-two, tier-three, and tier-four relationships that are difficult to track from the U.S., said Beth Kussatz, Manager of Northern American Network Design & Implementation, Deere & Co.
Still, dedicated companies can work with Mexican authorities, regulators, and providers to overcome those bottlenecks with clever solutions, the panelists agreed. “Don’t be afraid,” Habe said. “It just makes sense in today’s world, the local regionalization of manufacturing. It’s in our interest that this works.”
A quick reaction in the first 24 hours is critical for keeping your business running after a cyberattack, according to Estes Express Lines, the less than truckload (LTL) carrier whose computer systems were struck by hackers in October, 2023.
Immediately after discovering the breach, the company cut off their internet, called in a third-party information technology (IT) support team, and then used their only remaining tools—employees’ personal email and phone contacts—to start reaching out to their shipper clients. The message on Day One: even though the company was reduced to running the business with paper and pencil instead of computers, they were still picking up loads on time with trucks.
“Customers never want to hear bad news, but they really don’t want to hear bad news from someone other than you,” the company’s president and COO, Webb Estes, said in a session today at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
After five or six painful days, Estes transitioned from paper back to computers. But they continued sending clients daily video updates from their president, and putting their chief information officer on conference calls to answer specific questions.
Although lawyers had advised them not to be so open, the strategy worked. It took 19 days to get all computer systems running again, but at the end of the first month they had returned to 85% of their original client list, and now have 99% back, Estes said in the session called “Hackers are Always Probing: Cybersecurity Recovery and Prevention Lessons Learned.”
As the final hours tick away before a potential longshoreman’s strike begins at midnight on the U.S. East and Gulf coasts, experts say the ripples of that move could roll across the entire U.S. supply chains for weeks.
While some of the nation’s largest retailers were able to pull their imports forward in recent weeks to soften the blow, “the average supply chain is ill-prepared for this,” Tom Nightingale, the former CEO of AFS Logistics, said in a panel discussion today at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
Despite that grim prognosis, a strike seems virtually unavoidable, CSCMP President & CEO Mark Baxa said from the stage. At latest report, the White House had declined to force the feuding parties back into arbitration through its executive power, and a voluntary last-minute session had failed to unite the International Longshoremen’s Association (ILA)’s 45,000 union members with the United States Maritime Alliance that manages the 36 ports covered under their expiring contract.
The ultimate impact of a resulting strike will depend largely on how long it lasts, the panelists said. With a massive flow of 140,000 twenty foot equivalent units (TEUs) of shipping containers moving through the two coasts each week, each day of a strike will require 7 to 10 days of recovery for most types of goods, Nightingale said.
Shippers are desperately seeking coping mechanisms, but at this point the damage will add up fast, whether a strike lasts for an optimistic “option A” of just 48 to 72 hours, a pessimistic “Option B” of 7 to 10 days, or even longer, agreed Jon Monroe, president of Jon Monroe Consulting.
The first full day of CSCMP’s EDGE 2024 conference ended with the telling of a great American story.
Author and entrepreneur Fawn Weaver explained how she stumbled across the little-known story of Nathan “Nearest” Green and, in deciding to tell that story, launched the fastest-growing and most award-winning whiskey brand of the past five years—and how she also became the first African American woman to lead a major spirits company.
Weaver is CEO of Uncle Nearest Premium Whiskey, a company she founded in 2016 and that is part of her larger private investment business, Grant Sidney, Inc. Weaver told the story of Uncle Nearest—as Nathan Green was known in his hometown of Lynchburg, Tenn.—to Agile Business Media & Events Chairman Mitch MacDonald, in a keynote interview Monday afternoon.
As it turns out, Green—who was born into slavery and freed after the Civil War—was the first master distiller for the Jack Daniel’s Whiskey brand. His story was well-known among the local descendants of both Daniel and Green, but a mystery in the larger world of bourbon and a missing piece of American history and culture. Through extensive research and interviews with descendants of the Daniel and Green families, Weaver discovered what she describes as a positive American story.
“I believed it was a story of love, honor, and respect,” she told MacDonald during the interview. “I believed it was a great American story.”
Weaver told the story in her best-selling book, Love & Whiskey: The Remarkable True Story of Jack Daniel, His Master Distiller Nearest Green, and the Improbable Rise of Uncle Nearest, and has channeled it into an even larger story with the founding of the brand. Today, Uncle Nearest Premium Whiskey is made at a 323-acre distillery in Shelbyville, Tenn.—the first distillery in U.S. history to commemorate an African American and the only major distillery in the world owned and operated by a Black person.
Weaver and MacDonald's wide-ranging discussion covered the barriers Weaver encountered in bringing the brand to life, her vision for where it’s headed, and her take on the supply chain—which she said she views as both a necessary cost of doing business and an opportunity.
“[It’s] an opportunity if you can move quickly,” she said, emphasizing a recent project to fast-track a new Uncle Nearest product in which collaborating with the company’s supply chain partners was vital.
Uncle Nearest Premium Whiskey has earned more than 600 awards, including “World’s Best” by Whisky Magazine two years in a row, the “Double Gold” by San Francisco World Spirits Competition, and Wine Enthusiast’s “Spirit Brand of the Year.”
CSCMP’s EDGE 2024 runs through Wednesday, October 2, at the Gaylord Opryland Hotel & Convention Center in Nashville.