2020 was not a banner year for supply chains of any kind, but US businesses that faced some of the biggest bottlenecks relied on large fulfillment partners, which became unreliable as warehouses were shuttered and workers were afraid to come to their jobs. They watched in dismay as orders poured in, while products sat idle in their warehouses.
While many factors contributed to this situation, it was largely the result of a long-standing drive for more efficient supply chains. Customer expectations around speed and cost of shipping soared in the past ten years, and companies of all kinds abandoned the idea of running their own direct-to-consumer shipping channels. Instead, they sent their products to Amazon or another large distributor, which used massive scale to fulfill and ship orders with a maximum of efficiency.
This drive for efficiency was ubiquitous across the rest of the supply chain as well. Companies sourced the least expensive materials they could find, put them on ships, and waited for them to arrive. This kept costs low and margins high, but when global fleets were sidelined by the pandemic, supplies dried up, and businesses were thrown into confusion.
A chain is only as strong as its weakest link. If you have an extremely efficient but thin and fragile supply chain, one small disruption can upend the entire system. A single logistical failure soon blooms into an existential crisis. Such a situation doesn’t require a pandemic. It can be fueled by a shipping accident, a new regulation, or a civil disturbance in some corner of the world.
But the pandemic certainly focused the industry’s minds on the problem, and right now, the response has largely been a call for more agile supply chains. The idea is that businesses should use data to predict future needs and flexibly transition from supplier to supplier and partner to partner, as necessary.
Unfortunately, this comes with its own risks. No matter how good your data is, there are still major costs to ramping up new relationships. In addition, an agile approach requires predictive data, which always assumes that tomorrow will look much like today. The problem is that you don’t need an agile supply chain for normal times, you need it for abnormal ones, when everyone is scrambling for the same resources.
So, rather than putting all your eggs in the most efficient basket and hoping to make changes on the fly, you should consider using multiple partners and suppliers simultaneously — even in good times. That way, a business establishes solid relationships with multiple vendors. If one fails or suddenly becomes unreliable, the other is there to quickly pick up the slack, without any need to dial up a new operation from scratch.
In other words, we need to acknowledge the reality of the modern world. We have to stop looking for maximum efficiency in the short term and instead look to build in resiliency to mitigate the risk of catastrophic failure under the pressures that will eventually come.
This doesn’t mean that you have to resign yourself to mediocre results. The balance between suppliers and distributors doesn’t have to be 50-50 or 33-33-34. Instead, you could have a 95% efficient supply chain, and a 5% redundant one. You may use a large player like Amazon FBA to ship 95% of all of your product to consumers, but use your own smaller, more reliable operation to ship 5%. That way, if there is a disruption in the more efficient and inexpensive partner, you don’t need to pivot to an entirely new and unfamiliar one. Instead, you have experience with a different channel and can quickly and efficiently scale up processes, as necessary.
Simply put, we need to rethink our cult of efficiency. From boardroom to stockroom, companies need to understand the risks that go along with overly efficient supply chains. While it’s always tempting to squeeze out profits in the short term, we shouldn’t do so in a way that creates existential hazards down the line. Efficiency needs to give way to redundancy, at least in part, to ensure that businesses survive the inevitable disruptions when they come.
