How to advise your clients on combatting supply chain disruptions
Supply chain distress that stemmed from the pandemic may be seemingly fading into the background, but any commercial CEOs who don’t have this risk back at the top of their list are missing the big picture, according to a recent Harvard Business Review article.
Commercial CEOs and boards are at danger of assuming that supply chains have stabilized post-COVID. In fact, supply chain risk has become more severe, systemic, and strategic. And it requires CEOs to find ways to mitigate their risk, writes author David Garfield.
“The relative peace and quiet that executives are perceiving is actually ominous,” the article reads. “Addressing the risk cannot be left to procurement and operations teams alone, however smart and skillful they are.”
One of the biggest global risks to supply chains is constant and persistent conflict, and “CEOs and boards should get used to it,” the article reads.
Between instability in the Middle East, strained relations between Russia and the U.S., and more, CEOs must acknowledge the permanence of disruption from global conflict.
Not to mention, 3,000 trade restrictions were imposed in 2023 — a fivefold increase since 2015. Trade restrictions or decreasing trade agreements mean less access to markets and higher costs.
That’s leading to many companies “friendshoring” their supply chain, but these changes to suppliers don’t come without costs.
“Footprint changes are among the largest capital expenses for many companies, and they carry enterprise-wide implications for production, product design, and even value proposition,” the HBR article reads.
And as more investors, regulators and stakeholders push for environmental sustainability, these can cause disruptions to supply chains.
These three factors mean supply chain disruption could be imminent at any moment, regardless of how smooth a company’s operations might appear.
But for all these pressing, yet underlying threats to the supply chain, there are ways for CEOs and boards to manage these risks.
First, companies must prioritize supply chains at a strategic level. This comes by acknowledging the permanence of disruption and rejecting outdated supply chain models. “The pre-pandemic, just-in-time supply chain model is a thing of the past,” the article reads.
Second, improving financial flexibility is another way for top leaders to protect against disruption. That could mean building up the balance sheet, revisiting lines of credit, and prioritizing and strengthening risk management capabilities in order to reduce supply chain impacts.
Third, operational flexibility is a key to ensuring your client company is able to shift production from one product or plant to another should you experience disruptions.
“[CEOs and boards] can push for less complexity and more modularity in product portfolios. They can ensure there are backup sources for costly or critical components. They can also ask that supplier development investments be targeted to improve supplier quality in the areas with the greatest potential for instability.”
Companies can further foster organizational flexibility through cross-training, agile teams, and encouraging intrapreneurship.
Finally, companies can leverage transformational technology, like AI, to monitor, predict, and mitigate supply chain risks.
Technology is now advancing to the point where it can transform supply chains, not just optimize them, the authors say. Gen AI can also be used to identify potential partners and backup plans should a supply chain be disrupted.
Feature image by iStock.com/bfk92
