“We’ve got to start with the realisation that supply chains are the central nervous system of the business.”
Supply chains are essential to the functioning of the economy, but how do you manage the inevitable disruptions? In this episode of Thought starters, Dr. John Gattorna of Gattorna Alignment explains the need for supply chains to adapt in this era of unpredictability.
The cost of disruption
The level of disruption in supply chains has increased, and so too has their impact. John says, “Today we're in a new world of volatility where we have these big spikes in demand and supply, these “black swan” type of disruptions. We can expect a two-month disruption roughly every five years. On average, companies would lose 42% of one year's EBITA every ten years because of unplannable disruptions. The problem we've got today is that it goes beyond uncertainty to unpredictability.”
Multiple objectives of supply chains
Adding to the complexity, supply chains need to address multiple objectives such as customer satisfaction, margin, sustainability, resilience and adaption.
To address these, John says we need to look at the world from the outside in. “We’ve got to understand what our customer buying behaviours are, and quickly respond to very demanding customers who generally want short lead times.”
Globalisation and resilience
According to John, the last few years has made supply chain leaders reconsider their globalisation strategies. “I think it's fair to say that globalisation over the last 30 or 40 years, from a strictly supply chain point of view, has peaked, and will take a modified form in the future.
“It's like anything else in life - it's never one solution. It's going to be a hybrid approach, including what we call sovereign supply chains. In practice, this means reinvesting in manufacturing in the regions and locally. And, if things go wrong in the future, we're not so reliant on long supply chains.”
Supply chain resilience is measured by the time and cost needed to recover from a major disruption, with long supply chains seen as a risk factor. “If we get too lean, our supply chain networks become very brittle. And then when something happens, they break.” To avoid this, John suggests supply chain managers think more innovatively about finding more sophisticated solutions.
Digitisation: the key to building resilience
We’re in a period of rapid change with exciting times ahead. “The really big capability I think businesses are going to need is the idea of digitisation of data all along their supply chains.
“The holy grail is to be able to get to a point where we've got end-to-end visibility because if that's the case, we’re able to see what's happening in real-time.”
This kind of digitisation takes time, but the payoff is huge in terms of competitive advantage. “I know companies that have started on this process in 2011 and are still working on it, so it is a long and arduous process. But what about those companies that haven't even started out on that journey?” John asks.
“If we can get that visibility, we can make quicker decisions, which in itself will drive up resilience. That's going to give us a material competitive advantage.”
Rethinking tomorrow
To stay ahead of the competition, John encourages companies to innovate. “The idea ‘if it ain't broke, don't fix’ may have seemingly worked during the 60s and 70s, but it's absolutely the opposite case now. The name of the game in the next ten years is the ability of management to be able to make decisions faster than their competitors. In other words, if you're not on the digital pathway now, you're going backwards.”
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