The Economy: Big Picture

In the last month, we’ve participated in at least six economic forecast presentations or discussions with experts (economic, banking, investment, manufacturing). Although they each had nuances, common themes emerged. Adding our expertise into the mix, we see volatility on the horizon. 

The bottom line is that inflation is likely to continue, interest rates are unlikely to decline near-term without creating additional down-the-line inflation, unemployment will have fits and starts and trend up slightly yet the labor participation rate will remain lower than pre-pandemic. From a jobs standpoint, low skilled jobs are being automated, yet high-skilled jobs are experiencing a severe skills gap. Overall, the economy will be slower than it has been. Last but not least, geopolitical risks are concerning every expert, leaving volatility the name of the game in the foreseeable future.

The Economy & The Data

A summary of findings from recent research on the state of the economy includes the following:

• Stimulus (COVID money flooded the economy): Inflation would need to rise by 30% to absorb the stimulus. So far, inflation has gone up around 20%. Thus, there is around 10% left to absorb to get supply and demand in alignment. If interest rates stay put, the COVID funds will run out in about a year. Otherwise, we will have spurts & starts.
• Government spending: Government spending has continued at historic levels. For example, in 2023, nominal GDP was up $1.5 trillion yet federal debt increased $2.5 trillion, leaving a gap. Debt is increasing at what some see as an alarming rate.
• Inflation rate: It has gone up by 20%, but to absorb the stimulus, there is still 10% to go. It is likely interest rates will remain flat to work through the COVID money. If not, there will be bursts of inflation and recession (volatility). Inflation is likely to stay higher than the goal around 3-3.5%.
• Unemployment rates & labor participation rates: Layoffs surged 136% in January to the second-highest level on record with financial companies, the technology sector, food production companies, and retail with the highest levels (in order of sequence). On the other hand, these findings led the experts to think employers would show the latest hiring at 180,000 workers yet the number came in double that amount (353,000). The unemployment rate stayed about the same at 3.7% with the labor force participation rate at 62.5% (which close to 1% lower than pre-pandemic, 63.4%). There is 1.3 jobs for every person looking for a job. From a client point-of-view, they simply do not have the high-skilled resources required although they are automating low-skilled jobs, and depending on the industry, they have put a pause on hiring.
• Wages: Workers’ wages are improving but they still have not caught up with inflation. In the last three years, real average hourly earnings are still down 2.4%. Thus, people are not feeling better.
• GDP (gross domestic product): Real gross domestic product has largely recovered. It increased 3.3% in the 4th quarter and consumer spending has remained relatively strong. It shifted from goods to services, but has held up overall even with the interest rate hikes thus far.
• Banking: There is concern about the regional banks. They hold most of the commercial real estate loans that will need to be refinanced at higher rates over the next few years. Also, bank’s liquidity requirements are driving concerns with the changing of bonds prices with the quick increase in interest rates.
• Geopolitical risk: Every expert mentioned concern around geopolitical risk. It will lead to inflationary pressures with reshoring, increased prices (for example, the Red Sea rates, diversion costs, and/or expedite costs), impact on energy prices, etc.

The bottom line can be summed up in with the misalignment of demand and supply, the shrinking workforce (with Baby Boomer retirements – by 2030, the youngest of the largest generation in history will be older than 65) combined with the divergent needs for high-skills vs low skills, and the emergence of high geopolitical risk. Thus, volatility and uncertainty will remain.

What Should We Take Away

Smart executives will take bold actions to ensure they can supply their key / ideal customers while pruning low margin/ non-value added customers. They are adding customer/ product profitability, pricing, and costing trends into their SIOP (Sales Inventory Operations Planning) processes to evaluate options, set strategy and make decisions.

They will invest in the best high-skilled resources, supplement with additional options (refer to our article, Where the Talent Has Gone, and create a high-performance culture. Strong leaders will be pivotal to ensuring success. People follow leaders; not companies.

Proactive clients are upgrading ERP systems to ensure the basic processes (blocking and tackling) are in place. Additionally, they are rolling out advanced technologies including artificial intelligence (AI) to automate, digitize and thrive. To read more about these strategies, refer to our article, Automate, Digitize and Thrive in Supply Chain. It will be cornerstone to success in the next decade.

Additionally, smart clients are upgrading business processes, cleaning up their data to better utilize their ERP and peripheral systems, and building flexibility and scalability into their future thinking. The core processes include demand planning, production planning, engineering (for engineer-to-order ETO and configure-to-order CTO companies), production and inventory control, and replenishment/ distribution planning processes. From a data perspective, it is important to review bills of materials, routings, work centers, item masters, customer and supplier masters, and MRP parameters. Proactive clients are ensuring the basics are intact and they are focusing on the roadmap to stay at least a few steps ahead of changing conditions.

If you are interested in reading more on this topic:
Supply Chain Volatility, Risk & Capacity Remain Critical Priorities

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Supply chain has become an excuse. Although there has certainly been a slew of supply chain challenges that carry on with baby formula shortages, rail backlogs, computer chip issues, hurricane induced delays, fertilizer scarcity, and China’s zero-COVID policy delays, supply chain should no longer be the excuse. Only the proactive will thrive in the years to come.

Start with the simple. Assess your end-to-end supply chain. Focus on your strengths and identify what must be shored up quickly. Or should you completely change your supply chain strategy to better support your target customers’ needs? Why invest money in your bottom 20% of customers or products that utilize precious resources you should invest to take market share in what will be the largest opportunity since the Great Depression to solidify your position in your industry?

Instead, identify your target customers and ideal future state customers. Determine which products and services will meet their needs this year, next year, and 5 years from now. Quickly assess a directionally correct path forward, and incorporate these findings into your SIOP (Sales, Inventory, Operations Planning), also known as S&OP, process. Your SIOP process will provide clarity on changes in customer demand patterns, the potential misalignment of demand and supply, decisions required (such as pricing and the reallocation of capacity), and manufacturing and supply chain adjustments needed to support your growth and profitability goals.

If you are heavily reliant on manufacturing in other countries, it is time to reevaluate. How confident are you that you will be able to support your key customers? Most likely, you should assess reshoring, nearshoring, friendly-shoring, expanding capacity, or simply finding new partners closer to your customers. You must gain control over your ability to execute to support your customer’s needs.

Collaborate with your supply chain partners. Partner with customers in unique and creative ways for win-win solutions. For example, when working as VP of Operations for a mid-market manufacturer, we partnered with our number two customer to share demand information, coordinate agreements to share warehouse space and to build collaborative truckloads. Additionally, in a meeting of CEOs, 100% of the CEOs had worked with their competitors on win-win strategies. Rethink how to partner with customers and suppliers.  

Evaluate your use of technology. Although 90%+ of clients can better leverage their ERP system and related technologies to a greater degree to drive customer service, on-time-in-full (OTIF), profitability, and working capital improvements, it is no longer enough. Upgrading to a modern ERP system with advanced data analytics and business intelligence capabilities has become the new baseline to automate, digitize, predict, and provide a superior customer experience. It is likely you’ll need to think bigger with artificial intelligence (AI), internet of things (IoT), additive manufacturing, and digital twins.

Stop using supply chain as an excuse and start acting. There is no doubt the world is disrupted and will not realign on its own. Only the resilient and strong will survive, but most importantly, only the proactive and forward-thinking will thrive. Get ahead of the supply chain disruptions, or better yet, be disruptive and solidify your market position and EBITDA strength.

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The situation is not good. From Southern California to the Midwest to Ireland or Latin America (let alone Asia), the supply chain remains in chaos. We’ve attended several conferences, worked with clients, and collaborated with colleagues and trusted advisors related to e-commerce, logistics, manufacturing and the supply chain, and our takeaways aren’t telling a good story:

• Bullwhip effect/ roller coaster ride: The supply chain remains out of alignment, spurring further disruptions as companies try to figure out how to get the right products to the right place at the right time while not losing their shirts in terms of profitability and cash flow. The volatility in demand and supply throughout the supply chain is unprecedented.
• Cargo backup-up’s, historic dwell times, & empty containers everywhere: Empty containers remain a BIG issue, creating chassis shortages and furthering misalignment. There are also rail delays, labor shortages, productivity issues, port congestion, and a host of other issues.
• E-commerce is insane: E-commerce is expected to grow to 26% of retail sales by 2025 and is already overwhelming transportation/ last mile, warehousing (no space is available), labor and/or automation needs (as it is far harder to ship pieces than boxes), etc.
• Gas prices: Not only is inflation running rampant, but increasing gas prices are driving truck drivers out of business. In the last two days, I’ve heard from multiple sources that truck drivers are hanging up their hats especially those supporting the agriculture industry as they cannot stay in business with the price increases.
• Regulations driving businesses out: In high-regulatory states such as California, there are dizzying regulations coming down the pike. Worse than the number is the feasibility of the supply chain to meet the standards by the due date. In many cases, even though there has been tremendous progress and investment, there is no way to meet the regulations. For example, truckers will be dropping like flies as regulations take place as early as 2023. Whereas autonomous and electrical vehicles are progressing but not nearly fast enough to meet these deadlines, and it won’t matter anyway as the appropriate infrastructure to support progress cannot keep up.
• Shanghai lockdown: Shanghai has been on lockdown for months. Although it is starting to open up, there is an overload of container ships waiting at port. A tsunami will be on the way to U.S. ports shortly.
• L.A. & L.B. port labor negotiations: Although L.A. and L.B. were ranked least efficient, there are concerns of more demands from the labor unions as volumes have been robust. The situation could get worse with the labor negotiations, further delaying cargo at our busiest ports (supplying 40% of the products to the U.S.). Customers are moving freight east in case negotiations go awry; however, it is creating a backlog at other ports and making a tiny dent in the incoming tsunami.
• Russia-Ukraine war impacts: Any products and agriculture items produced in Russia and Ukraine are going into a state of chaos.
• Baby formula shortages: Although the Abbott plant is starting to come back online, there are no quick fixes to suddenly produce (or ship from Europe and Australia) 3-4 months of production (equating to 40% of U.S. volume). It will take time.
• And now there is a tampon shortage: Due to shortages of raw materials, labor, and other factors, the store shelves are sparse in the tampon aisle, spurring panic buying of favorite brands, which further exacerbates the issue.

And the list goes on….. There is no end in sight. Successful companies will not wait for the global supply chain to realign. Unfortunately, you are only as successful as your weakest link in the supply chain.

The Strongest Link in Your Supply Chain

The successful companies will not only strive to be the strongest link in your supply chain, but they will ensure that the weakest link doesn’t send their customers to the competition. You have a once-in-a-lifetime opportunity to secure your position as a market leader and thrive for years to come, if you choose to take advantage of the opportunity and start to act NOW. The proactive, innovative, and collaborative companies that see opportunities that others miss, invest (in people, processes, technologies, trusted advisors, equipment, etc.) when others don’t, and are willing to take smart risks when others shy away will be successful. Our belief is that these companies will lead for decades in the future. Are you interested? If so, become the strongest link in your supply chain and take control of your future.

How Do We Take Control?

There are several strategic decisions you should be evaluating immediately:

• Which customers do you want to keep? Which do you want to eliminate?
• Which customers do you want to target?
• Which products and services do these target customers need currently? More importantly, what will they need in 1, 5, and 10 years?
• Are you innovating and collaborating with customers?
• How should these strategies translate into pricing and priorities?
• Which products do you want to control? Which are strategic to your customers?
• Which new products and services should you design and develop to support these needs?
• How can you reduce what took 4 months to 4 hours? (across the board)
• Which products should you rationalize?
• Where should you locate your plants to best support your business?
• Should you reallocate production among your plants?
• Where should you position inventory and capacity in your end-to-end supply chain?
• Which suppliers are considered strategic? Where are they located? Are you treating them as a vendor, supplier, or partner?
• Are you innovating and collaborating with suppliers?
• What risks should you evaluate and address in your end-to-end supply chain?
• Should you add, consolidate, or change your distribution network to support your customer needs and to maximize profit?
• Should you insource or outsource?
• Who are your transportation partners? Are you aligned in supporting future customer needs?
• Which systems and technologies do you need to support your future customer and supply requirements?
• Are you thinking 3 moves ahead as it relates to your employees? Those with talent will thrive; those without will struggle and decline.
• Do you have a Sales & Operations Planning process (S&OP), also known as SIOP (adding inventory into the title) to align your demand with supply, and most importantly, to keep your demand and supply aligned with growing revenue and EBITDA.

Don’t spent months evaluating; however, don’t jump to decisions and waste precious talent and resources. Instead, perform a rapid yet broad (deep and wide) assessment of your opportunities, your current position, your target position, and the critical priorities to ensure your strategy comes to fruition. Typically, plans don’t fail in formulation (although we are in a high stakes time frame), they fail in implementation. What resources will you need to ensure success?

Please keep us in the loop of your situation and how we can help your organization thrive during these times of volatility and disruption. There will be more winners created than at any other time than since emerging from the Great Depression. To gain additional ideas and insights on how to best navigate these volatile times and thrive, read our new eBook Thriving in 2022. Learning from Supply Chain Chaos. Download your complimentary copy.

The post State of Supply Chain appeared first on LMA-Consulting Group, a supply chain consulting firm.

“Supply chain disruptions will likely persist well into 2024 and beyond as hospitals, healthcare providers, and medical device companies continually pivot to address the market’s immediate needs, creating further disruption and misalignment,” comments Lisa Anderson, founder and president of LMA Consulting Group Inc., a consulting firm specializing in manufacturing strategy and end-to-end supply chain transformation.

The Path Forward for Supply Chain Success

The current supply chain debacle has been festering for years, and there is no magic wand to fix it.

Supply chain issues are abound in medical devices. According to The Health Industry Distributors Association, 8,000-12,000 containers of critical medical supplies are delayed an average of 37 days throughout the transportation system. Clients are experiencing the same issues. Significant delays, rising prices, service failures, and much more are creating stress throughout the system. These issues are not abating in 2022, yet the needs are surging with the rise in COVID-19 cases and previously delayed surgeries and treatments. How did we get here, and how can these supply chain challenges be resolved?

Unfortunately, there are no quick fixes. The current supply chain debacle has been festering for years, and there is no magic wand to fix it. From 2012 to 2018, the U.S. trade deficit doubled in medical equipment, making the nation more dependent on outsourced production. During the pandemic, the extended supply chains exacerbated the situation. Case in point: When Chinese manufacturers shut down in early 2020, the United States was still booming but as American cases skyrocketed and demand surged for medical equipment, the ports were empty and domestic manufacturers were temporarily closed.

Material shortages began occurring more frequently as the supply disruptions worsened, causing the supply chain to spiral totally out of control. For example, in Asia, product is loaded on container ships at the ports, shipped across the Pacific, unloaded at U.S. docks, and then handed off to a driver to transport to its next stop. Eventually, it arrives at a warehouse, where it’s unloaded, stored, and reloaded to ship to its final destination. The typical transit time was 13 weeks before the pandemic but COVID-19-induced delays at each step of the supply chain are now exacerbating the situation.

The repercussions of a global supply chain were perhaps best illustrated by when the Ever Given container ship became stuck in the Suez Canal for six days in March last year, delaying sea traffic and rerouting cargo freights. The ordeal created further disruption to already tangled supply chains. The Texas storms also caused further supply chain disruption, negatively impacting medical devices—specifically any requiring plastic. Labor shortages further exacerbated the situation.

The delays remained amid the economic recovery and vaccine rollout. As the world recovered, demand for goods and services skyrocketed. China produced and shipped containers, and the ports have been unable to catch up due to widespread labor shortages at the docks and entire transportation system. The backlog was so dire that a request was made to slow container ship traffic so the port congestion and environmental issues would ease. Even if the ports could increase capacity, there are other hurdles that must still be overcome: a significant shortage of drivers and chassis (the latter not produced in the United States), empty containers (without an efficient route back to China, they now litter southern California), full warehouses, and labor shortages. Essentially, the supply chain is completely out of alignment.

Supply chain disruptions will likely persist well into 2024 and beyond as hospitals, healthcare providers, and medical device companies continually pivot to address the market’s immediate needs, creating further disruption and misalignment. Consider the consequences of a hospital worker using a substitute product—while it meets patients’ needs, the facility’s purchasing department may not be aware of the substitution and therefore will not order an adequate supply of the replacement product, thus creating a future shortage. Additionally, when products are not available, purchasing departments will order from backup vendors even though the original supplier is still working through its backlog and shipping past due products. This creates duplicate demand in the global supply chain, and that demand is currently being exacerbated because customers are ordering more product than they need (erring on the side of caution). It’s become a vicious cycle that is difficult to break.

Clients and colleagues have realized they have accepted far too much risk in their supply chains. A European client, for example, thought it had a backup vendor to its China supplier because it had a secondary source in India; but when the pandemic began, neither supplier could deliver the requested materials. Another client had identified a backup source but did not utilize this source on an ongoing basis. Hence, when COVID-19 created major supply chain disruptions, the backup source was busy and had to prioritize its current clients. Successful clients are re-evaluating their supply chains, rethinking sourcing options, re-evaluating partners and backup strategies, and reshoring/near-shoring when and where it makes sense.

Manufacturing locale has become an important strategic topic in supply chain boardrooms. Progressive clients are quietly moving production capabilities closer to the customer in an effort to create a more resilient and responsive supply chain that can meet evolving requirements. Although supply chain issues will eventually subside (at least temporarily), these clients realize they must take control and redesign their supply chains to meet changing customer needs.

According to healthcare consulting firm Kaufman Hall, 99 percent of all hospitals and healthcare systems have reported challenges in procuring necessary supplies due mainly to shortages of key items and significant price increases. Instead of adding to this statistic, successful companies are deciding where to produce, what to produce, and which customers to prioritize. Thus, they are better able to meet surging demand and are improving service levels and supporting positive patient outcomes. In addition, they are better able to scale, expand operations, find new partners, and collaborate with existing partners to find innovative solutions.

In addition to re-evaluating supply chain strategies, proactive companies are quickly adjusting and improving their planning and procurement processes to support changing needs. For example, a life sciences manufacturing client expected its sales to double but was concerned about delivering its product. Although the Sales team had a clear financial forecast, Operations was fuzzy on the products that were targeted for market. To align Sales with Operations and deliver the sales plan, the company rolled out a sales, inventory, and operations planning process (SIOP or S&OP).

The first priority of the SIOP process was turning the dollar forecast into a product forecast. Not only did the organization review historical sales patterns and growth rates by customer and item, it also reviewed sales orders, quotes, customer inventory agreements, and feedback and insights from customers, executives, and sales and marketing teams. Executives agreed upon a 12-month rolling forecast process, and then translated that forecast into one that made sense to operations.

The client converted the forecast from dollars to an equivalent base unit of measure. Operations calculated labor and equipment requirements for producing the bulk product, bottling to customer specifications, and completing the supporting quality processes. After finalizing staffing and capacity levels, the company determined long-lead time material requirements and reviewed its global distribution network. SIOP enabled this organization to meet its growth plans in a scalable and sustainable way.

In order for companies to realign their supply chain and take advantage of once-in-a-lifetime growth opportunities post pandemic, they must digitize their supply chains. They should start with a strategy to determine the technologies that best support their path forward because resources are not limitless. There are best practice strategies, technologies, and techniques to improve production, material, distribution, procurement, and inventory planning processes to get the right product to the right place at the right time at the right cost. There is also significant opportunity to collaborate with customers and suppliers to manage inventory throughout the end-to-end supply chain for win-win results. For example, an adult incontinence manufacturer I once worked for partnered with Cardinal Health to proactively manage inventories and deliveries to its distribution centers to achieve award-winning service and inventory results for both companies.

Although the global supply chain will not realign anytime soon, all hope is not lost. Proactive companies will rapidly assess and develop new strategies to realign their supply chain, implement proactive production and material planning processes such as SIOP/ S&OP, and leverage modern ERP systems and related technologies to digitize their supply chain and meet changing customer needs. There will be significant growth opportunities for proactive companies after the pandemic.

Originally published in MPO Magazine.

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In this episode of Since Sliced Bread, Lisa Anderson, president of LMA Consulting Group, explains where the supply chain stands now, how it got this way and what she sees successful companies doing to get through the crisis. In the second half, she discusses the use of data.

Companies get strategic to pull ahead of supply chain crunch

Despite the opportunities for growth wholesale bakers have had due to increased consumer demand, the coronavirus (COVID-19) pandemic exposed weaknesses in the supply chain that are hindering the industry to fully take advantage of those opportunities. Bakers and suppliers — both ingredients and equipment — are struggling to source raw materials and find reliable transportation necessary to meet customer orders. In this episode of Since Sliced Bread, Lisa Anderson, president of LMA Consulting Group, explains where the supply chain stands now, how it got this way and what she sees successful companies doing to get through the crisis.

“Right-sizing or realigning your supply chain, those companies that are doing that are taking additional volume that their competition cannot supply and pulling away in the positive direction,” she said. “The ones that are hoping and waiting for things to get better are pulling away in the negative because others are taking the volume.”

Ms. Anderson outlines how she believes this situation will reshape the supply chain for good and what will eventually pull the economy out of the crunch. Labor remains at the heart of the issue, slowing down transportation both at ports and in the trucking sector.

Ms. Anderson explains how shortening supply chains can provide relief and digital tools can help bakers become more strategic about their inventories. These strategies can help bakers move through the current supply chain crisis and adapt to the future. Listen to this episode to find out what she thinks it will take for all this to be over.

Originally published on Baking Business.

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We are in peak season in a peak year. Capacity is limited across the board. From a supply chain perspective, there is extremely limited availability of containers, chassis, port resources, trucks, warehouses, etc. From a manufacturing perspective, it isn’t much better as materials, supplies, people and more are in limited supply. Business models are changing rapidly, and supply chain disruptions are already changing supply chains. Only the most innovative, proactive, agile, quick and long-term relationship focused are thriving – with a whole lot of effort!

According to the Journal of Commerce, Peter Sand, chief shipping analyst at BIMCO, said that some in the industry do not expect relief until Chinese New Year in 2023. In our view, we are in this for the long haul. Don’t count on ANY end date. We are entering a new era. Are you prepared for succeeding in this new era?

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CLAREMONT, CA—The COVID-19 pandemic has proven the critical nature of the strategic supply chain, according to expert supply chain thought leaders within the Society for the Advancement of Consulting® (SAC). Companies realize they can no longer ignore this crucial business function, which belongs firmly in the C-Suite. This includes the thinking, actions, and initiatives that put the supply chain in a strategic context.

Inventory Accommodation or Optimization?

“As a manufacturer, do you have an inventory accommodation strategy or an inventory optimization strategy?” asks Patrick Daly, Managing Director of Alba Consulting, based in Dublin, Ireland. “In my work with manufacturing clients, I often find that they do not have any explicitly articulated strategy at all.”

“Frequently, there is no feedback loop between infrastructure provision to accommodate inventory, and setting the policies that determine how much inventory the company holds to support manufacturing operations,” explains Daly. “Consequently, companies end up engaging in contradictory and counterproductive initiatives in different silos within the business.

“Under pressure from excess inventories, operational managers will lobby for increased capital expenditure approvals or the expansion of spending on warehousing with third party logistics service providers,” he says. “Meanwhile, policies related to materials on hand, dual supply, supplier location and lead time, and minimum order quantities, are set or agreed upon without reference to the inventory accommodation consequences. The best results are achieved by explicitly tying these two strands together systemically with a coherent strategy.”

Boardroom Involvement Gaining Ground

“Executives are quickly realizing that the end-to-end supply chain must be elevated to a strategic topic in the boardroom,” points out Lisa Anderson, president of Claremont, CA-based LMA Consulting Group, Inc. and a manufacturing expert known for creating supply chain resiliency. “Many companies were caught off guard during the pandemic with limited resiliency, highlighting this issue.”

“Reshoring is on the rise. Collaboration with United States-Mexico-Canada Agreement (USMCA) partners is increasing,” notes Anderson. “Executives are no longer just considering their options, they’re taking actions to take control. As options are evaluated, it’s becoming clear that the supply chain is larger than any single topic such as sourcing, logistics, or planning.

“Taking a strategic view of how to grow the business in a profitable and scalable way, while navigating changing customer conditions, dictates a new level of respect for the strategic supply chain in the boardroom.”

New Supply Chain Strategies – Blink and You’ll Miss It

“In what seemed like the blink of an eye, our marketplace changed.” according to Diane L. Garcia of Lorraine Consulting, LLC, an expert in helping clients improve their unique supply chain processes.

“Our supply chains and technological capabilities shifted in new directions,” says Garcia. “We now live in a world where goods and services arrive the same day after only a few clicks on a phone. Amazon is not the only name in the game. More and more companies are offering direct delivery through easy-to-use ecommerce interfaces.”

“No longer can supply chain execution take a backseat,” she adds. “The organizations who understand what their strategic supply chain is up against will advance in an ever-changing marketplace.”

Investors Thrusting Climate Risks onto Supply Chain Agenda

“Investors are now asking for companies to provide assessments of environmental risk to the business. A firm’s supply chain is a critical piece of the TCFD (Task-Force on Climate Related Financial Decisions) puzzle,” points out Mark D. Wolf, president of US-based LavaFish Advisors, and a sustainability expert known for creating scenario analyses using internal expertise.

“Executives who understand, assess, and plan for climate related risks in their supply chain can play a strategic part in driving revenue, growing profitability, and maintaining the social license to operate,” says Wolf.

“At a minimum, companies must know the carbon emissions from their supply chain. Accountability for carbon is required by investors. The regenerative economy is becoming key for many,” he adds.

Four in Five Executives Now Rethinking Supply Chain Strategy

The COVID pandemic has illustrated just how extensive and overly complicated many supply chains became says Art Koch, President of Arthur Koch Management Consulting, LLC. “Depending on the survey, 76% to 84% of executives and board members are rethinking their manufacturing footprint and supply chain strategies to emphasize the importance of flexibility and responsiveness. They identified the necessity to compress lead-times by reshoring and insourcing operation-critical parts to regain control of their supply chains.”

“As we exited 2020, the Institute of Supply Management’s Purchasing Managers Index increased for the sixth straight month,” Koch notes. “Those figures indicate confidence. Our economic cycle has shifted toward growth and it’s at the highest level since August 2018.”

“The buoyant Purchasing Managers Index brings hope for ongoing expansion in the North American Industrial sector,” he adds. “Astute executives are preparing for the next wave of expansion. They’re transforming ‘problem chains’ into profit chains by investing in supply chain professionals, compressing lead-time, and reducing the total cost of ownership.”

Future-Proof Companies Use an Old Strategic Weapon

“An efficient and effective Supply Chain has always been a strategic weapon. It can provide a significant competitive advantage over the competition,” explains David Ogilvie of David Ogilvie Consulting, a business transformation consulting firm based in Brisbane, Australia. “Recent events have simply highlighted its importance to those who had lost sight of its strategic value.”

Sound strategy sets the tone of the organization of the future says Ogilvie. “It sets up what the company will look, smell, and taste like in the future. There’s nothing more strategic than profitable growth and nothing more important than creating and keeping customers happy. And there’s nothing more crucial to keeping customers happy than an effective and resilient supply chain. Boards and senior executives need to rediscover the strategic importance of their supply chain if they want to successfully manage in turbulent times.”

Intelligent Design Avoids Fatal Trap of Evolution

“Two theories prevail about the origin of man: the theory of evolution and the concept of intelligent design. The same parallel exists for supply chains,” explains Antonio Zrilić, managing director of LOGIKO CONSULTING, based in Zagreb, Croatia. “A characteristic feature of the theory of evolution is that it takes billions of years for everything to work out well. That’s without events that wipe out life. Those events include cataclysms (crises and recessions) and predators (competition). Companies don’t have billions of years to evolve. They have months or, at best, years.”

“My preferred theory is intelligent design,” advises Zrilić. “This includes experience, knowledge, and predictions. It also includes the smart design of the facilities, organization, and processes.”

“Giving in to evolution or limiting themselves to the way things have been down for years, many companies end up with the equivalent of an evolutionary appendix,” he says. “It exists because it was there, but has no known use now. At best, they don’t use their full potential. At worst, they don’t live a long and successful life.”

Supply Chain Flexibility Facing Unparalleled Challenges

“The number one thing that business and industry has learned over the past year, from the C-suite to front line workers, is the importance of flexibility in the supply chain,” says Elizabeth Warren, Global Logistics Specialist and president & CEO of Dialed-In Partners, a consulting firm based in Los Angeles that focuses on public policy issues in the goods movement industry.

“Flexibility has long been a topic of discussion,” notes Warren, “And most businesses believed they had an adequate contingency plan for unforeseen emergencies.

“The impacts of the pandemic have created a need for flexibility that is unparalleled in duration and scope,” she says. “This is affecting every segment of the supply chain on an absolute global basis. Companies have realized that to be truly resilient with the ability to pivot their business during any disruption, their supply chain strategy must be a core principle in their overall strategic plan.”

The Big Switch in Spending has Big Consequences

“If you need any reminder as to why your supply chain is key to your strategy, just completely disrupt it and see what happens,” according to Evan Bulmer, Director of EBAA, a consulting firm based in Adelaide, Australia. “Nothing like a good pandemic to demonstrate this.”

“As the world economy is restricted from buying services—think travel, restaurants, entertainment—we are spending our money on goods, including luxury goods,” Bulmer explains. “With such a stark change in market conditions, understanding both the supply chain and your customer demand is critical. This will allow you to be in the best position to take advantage of these market conditions. There is, of course, a lot of money to be made by those who get their supply and demand priced correctly.”

Originally posted on SAC website: March 1, 2021

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Interlinks – Supply Chain Strategy and Tactics Post-COVID
Antonio Zrilic, Mark Wolf and Lisa Anderson

Find out more about Interlinks here.

The post Interlinks – Supply Chain Strategy and Tactics Post-COVID appeared first on LMA-Consulting Group, a supply chain consulting firm.

Forget ‘If It Ain’t Broke, Don’t Fix It’

All bets are off in these unprecedented times. What worked yesterday might not work tomorrow. Take a fresh look at your product supply strategies.

Should We Make or Buy?

Many executives outsourced when it was the popular and often a smart cost decision to do so. However, the times have changed substantially. Sometimes, we continue what is in place because of the cost and disruption to change. What is the current situation and how has it changed since the pandemic? Read our eBook, Future-Proofing Manufacturing & Supply Chain Post COVID-19 to gain details about make or buy strategies and what makes the most sense to meet your business and customer requirements.

According to my friend and colleague’s article, Is Just in Time Broken?, the incremental cost of inventory as a percent ranges from 31-58%. Now, that is substantial! Are you considering these costs in your calculations? Great minds think alike as our recent articles, JIT Might Not Be What It is Cracked Up to Be and Think Twice About Your Manufaturing Supply Chain encourage executives to THINK. Start with your customer, do a few quick calculations, use common sense and you’ll know what to do.

We are definitely interested in what you discover as you rethink your product supply strategy. Remember, no matter how “good” you feel you are positioned, if you aren’t innovating, you are moving backwards. Check out our eBook and contact us if you’d like to brainstorm these concepts further.

The post Product Supply Strategy appeared first on LMA-Consulting Group, a supply chain consulting firm.