By Joe Terino, Global Head of Bain & Company’s Supply Chain Practice and Karim Shariff, Partner, Bain & Company Middle East
For decades, companies in the Middle East have embraced globalization and lean supply chain operations to meet more demanding customer expectations while bringing down costs and reducing inventory. But the inherent weakness and vulnerability of this model has been exposed by a decade of supply chain disruptions that grew in frequency and magnitude. Natural disasters, weather events, labor shortages, trade disputes, and other geopolitical issues showed the cracks in global supply chains. Then, over the past two years, several aspects such as the devastating Covid-19 pandemic and the global semiconductor shortage, made this vulnerability obvious to every business leader—and moved supply chain resilience to the top of the C-level agenda.
The worst of these supply disruptions have taken significant bites out of regional companies’ output, sales, profitability, and share prices, with recovery sometimes taking months or even years. The chip shortage, for example, is estimated to have curbed global automotive production by more than 7 million vehicles in 2021, and the industry, similar to others, has yet to fully recover. Most of these disruptions understandably caught leadership teams by surprise. But the result is that they’re now constantly on edge, awaiting the next unforeseen disruption lurking around the corner.
A growing number of executives have decided they can no longer afford to get caught flat-footed. They recognize that while it’s important to respond effectively to short-term supply chain shocks, they also have to reposition their supply chain for the long haul because disruption is the new global reality. Companies that manage these disruptions best will have a distinct competitive edge over the next decade. At the same time, pressure from consumers, regulators, and shareholders to increase sustainability is making supply chain repositioning an even more urgent priority—and creating another potential source of competitive advantage.
What it takes
The challenge is finding the appropriate balance among resilience, sustainability, responsiveness, and cost. These goals often run counter to one another. For example, a supply chain that is 100% resilient will also likely be too costly. There will always be trade-offs, and the balance will look different for every company, depending on various factors such as their industry, geographic footprint, and size.
A few questions can help jump-start the process of striking the balance that’s right for your company:
- In order to win in the marketplace, what does the business need from our supply chain in terms of resilience, sustainability, responsiveness, and cost?
- Where do our existing supply chain capabilities fall short?
- How often does the balance between these dimensions need to be refreshed in order to remain competitive?
- What capabilities and processes will be required to continually monitor and assess the balance of priorities?
These considerations make it clear that incremental changes won’t meet the challenge. Succeeding will require a bold strategy and fearless execution. What does this look like on the ground? Leading companies focus on the following four areas.
Improving collaboration between the supply chain team and other key stakeholders. At many companies, there can be limited communication between supply chain leaders and the sales team, business unit heads, or C-suite about strategy or investment priorities. Often this is because the organization is siloed or the supply chain department historically hasn’t had a seat at the leadership table. But the result is a lack of direction that can paralyze the supply chain team:
Leading companies look for ways to improve communications among the supply chain, C-suite, sales, and other commercial teams so that supply chain leaders clearly understand the trade-offs required to win in the market. The most successful companies are also involving other key stakeholders in the supply chain balance equation discussion, including finance, R&D, regulatory, sustainability, and procurement. This ensures everyone understands all the implications of the proposed overhaul—and what’s feasible.
Tapping into the power of unconstrained thinking to set a bold vision. Only transformational thinking can solve the problems that supply chains now face. Leading companies start with a blank sheet of paper, set aside all constraints, and draw up the end-to-end supply chain they expect they’ll need in order to win in their industry 5 to 10 years from now. Then, they chart a pragmatic, detailed roadmap to the target.
The perfect supply chain is likely unattainable. Some limitations (across operations, capital, commercial capabilities, suppliers, and regulations) must be factored into the real-world scenario. But based on our experience working with companies around the globe, when business leaders give themselves the space to think boldly and they work backward from the end goal, it usually allows the company to get a lot closer to perfect.Investing in digital capabilities that help connect the supply chain and change the economics in ways that weren’t previously possible. As they transition to Industry 4.0, companies’ investments in technology transformation and digitalizing their operations also play an essential role in supporting supply chain redesign initiatives. Digital capabilities are enabling companies to rebalance their supply chains toward resilience, sustainability, and responsiveness without taking an untenable hit on cost or efficiency.
Leading companies are applying machine learning and other digital tools to improve demand forecasting, inventory management, production scheduling, early detection of supply chain disruptions, and a host of other critical elements. They’re also using factory automation to bend the cost curve and increase resilience. Over the past several years, effective deployment of these technologies—in combination with rising geopolitical uncertainty and the rising costs of shipping and overseas labor—has completely restructured the calculus for many companies’ global manufacturing and supply chain footprints.
The bottom line is this isn’t just an overhaul of the supply chain; it’s a companywide transformation and a multiyear journey. The emerging leaders are acting as quickly as they can to remake their supply chain’s vulnerabilities into virtues so that they not only get ahead of the next global supply chain crisis but also accelerate past their competitors.