Reimagining the supply chain
A number o orward-looking companiesare seizing the initiative, however—risingto the challenge o permanent volatilityby reimagining their supply chainsas adaptable ecosystems o processes,people, capital assets, technology anddata. Rather than trying in vain tomake every part o their operationsas adaptive as possible, they strive or exibility where it matters and ocustheir eorts on operational exibilitythat drives profts, not just short-termefciencies.Research by MIT and Accenture,respectively, has shown that whiledisruptions in the balance betweensupply and demand due to geopoliticalevents and natural disasters get themost press, disruptions due to volatilityrom everyday occurrences like poor supplier perormance, orecast inaccu-racy, and slow or inconsistent executionactually cause more lost profts. Atthe same time, they are inherentlymore addressable. Further, regardlesso the type o risk or cause o disrup-tion, companies that are more dynamicin responding to these anomalies aredisproportionately more proftable—in act, as much as 75 percent moreproftable—than their less adaptivecompetitors (see chart, above).In unpredictable markets, dynamicsupply chains are designed to meetthe specifc needs o each customer channel. I a particular product ishighly sensitive to media trends, or example, suppliers may be willing tocommit to highly exible manuac-turing and distribution networks or the ront end o the product liecycleand then move to more cost-eectivemethods toward the back end. Or i consumers o another product reallycare only about low price, then thesupply chain or that product mustruthlessly drive out every last bit o waste or excess cost.Many consider maximum exibilitythe ultimate objective o every supplychain unction. Such unctionalexibility requently comes at a cost,
Source: Dr. David Simchi-Levi, “Operations Rules: Delivering Customer Value Through Flexible Operations,”MIT Press (October 2010)
Natural disastersGeopolitical risksEpidemicsTerrorist attacks Volatile fuel pricesCurrency fluctuationsPort delaysMarket changesSuppliers’ performanceForecasting accuracyExecution problems UnknownKnownUncontrollableControllable
Some risks—like natural disasters or geopolitical upheavals—cannot be easily anticipatedand are uncontrollable, while others tend to be more expected and therefore morecontrollable. Research has shown that although only 10 percent of manufacturers havemature systems and processes that can anticipate and control certain risks, those that doare 75 percent more profitable than their competitors.