Supply chain leadership represents the pinnacle of achievement in the profession. But as the world moves out of the worst days of the pandemic and into uncharted territory – and hopefully recovery – even the best will be looking to refresh their skills
In many organisations, supply chain management has come to prominence as never before, giving those in the profession more visibility and clout. At present, senior leaders are helping staff safely return to the office, supporting the transition to hybrid working arrangements and, perhaps for the first time, dealing with widespread anxieties and even emotional burdens the past year has created.
And if that wasn’t enough, CPOs have to manage this at the same time as navigating a fast-changing function and individual corporate goals. For some, this represents the core challenge: balancing the needs of the team on a daily basis with those of the organisation for the future. In addition, supply chain issues are also gaining a higher degree of attention.
Despite being long-standing challenges, corporate working capital initiatives are of more interest to executive boards, as are ever-increasing source material prices which lead to increased costs of goods sold, and the indirect costs coming from capital investments or logistics. Also, boards are starting to see the benefits of connecting supply chain teams with sustainability projects.
For the majority of companies, greater awareness of the impact of unsustainable and unethical practices means businesses started paying closer attention to their global impact and as such, leaders are taking more and more responsibility for decarbonising supply chains.
So, how can CPOs respond to the challenges they face in order to lead their teams and businesses in the right direction?
1. Lead in the present
Supply chain leaders should prepare for continued uncertainty and not let the hope that we are out of the woods cloud theirjudgment. Even though the world markets are on a positive trajectory, localised outbreaks of Covid-19 and regional variants are likely to emerge for some time yet, with the possibility of causing short-term shutdowns. Due to this, it is advised for leaders to remember that resource and demand constraints for both commodities and labour can lead to inflation, therefore it’s wise to prepare for long-term volatility.
Changes in demand can happen quickly, and the effects will be felt differently across sectors. For retailers, this can affect relationships with particular suppliers while for manufacturers it could close factories and result in unused inventory. More strategic, flexible planning for extreme and seemingly unlikely fluctuations is essential.
2. Track macroeconomics
Senior professionals need to focus on managing the fall-out from macroeconomic conditions, which may not come as a surprise but which will require deeper attention far into the future. For instance, if a drop in demand for a specific component is followed by a faster than expected recovery, this could contribute to widespread shortages. A prime example is the lack of semiconductor chips, which has affected a vast array of manufacturing companies including those in the automotive and aerospace sectors as well as any firm making computer-aided products, smart devices and entertainment technology.
The prolonged shortage has led to some firms pausing the manufacture of affected products, cancelling new model launches, and even closing factories. Today’s leaders should aim to become more accustomed with macroeconomic fluctuations and making extensive preparations for future instability across geographical regions. One way to build resilience is to target management of contracts, as ongoing instability is likely to call for more flexible contracts, share-of-need contracts and performance-based contracts.
3. Aim for maximum visibility
There is an ever-present need for transparency and supply chain visibility. While major incidents such as the Japanese tsunami of 2011 harmed firms due to a lack of information on their tier two and three suppliers, resulting in sudden shortages or complete outages, the impact on supply chains was relatively localised. When it comes to global-level disruptions, for instance the Covid-19 pandemic, lack of supplier visibility can quickly exacerbate problems. One of the contributing factors is the management of single sourcing, which can introduce points of weakness into supply chains. Single sourcing and offshore operations can offer lucrative benefits, but have come under scrutiny as businesses have become more risk-sensitive.
For procurement leaders, the emphasis should be on properly managing these arrangements to ensure alternative options in different regions and dedicating time to relationship building with key suppliers and complementary ones. The European Commission has said in the future the EU should balance its commitment to “openness to trade and investment” with “the need to analyse and address strategic dependencies, both technological and industrial”. It highlighted batteries, pharmaceuticals, semiconductors and cloud technology as areas where the commission might take an interest in bolstering supply chains. CPOs can use tax, labour and trade policies as the levers to implement such policies and new requirements.
4. Get in line with ethics
Supply chain managers need to be aware of ethical issues. While ethical issues have been discovered in a wide variety ofproduct supply chains, including textiles, technologies and food stuffs, regulatory pressures are increasing to help close these gaps. For instance, Germany’s new Supply Chain Act, which will come into force in 2023, will require large firms that do significant business in Germany to carry out robust due diligence to detect and stamp out human rights and environmental abuses in both their own businesses and supply chains.
While other countries may not be making new laws, they may be setting precedents that have similar effects. For instance, a recent Dutch court case deemed oil company Shell to be responsible for its suppliers emissions. Such large-scale actions suggest it’s a matter of time before all companies become duty-bound to account for their suppliers’ activities.
5. Be strategic on sourcing
Public sector procurement leaders are under particularly high pressure and there is a call for greater agility and flexibility of processes. Since the outbreak of the pandemic, many countries have encountered scrutiny over the urgent purchasing of PPE and vaccines, as well as the nature of their emergency procurement strategies. Vaccines, too, have highlighted issues around signing contracts in uncertain conditions, and the need for a deeper understanding of the trade-offs involved in various procurement and distribution models.
The global emergency forced many to up their game. In the past year it has been common for organisations to have switched focus to maximising efficiency and agility in sourcing activities, and even reassessing the use of internal resources to support operational and tactical activities. As such, public procurement leaders have found their priority is to focus on strategic sourcing, as well as supply security and stringent forward planning that will bolster the organisation for years to come.