Rethinking supply chain strategy

Black Swan events lead to disruptions and challenges that were likely never planned for. COVID-19 is no exception, as any supply chain leader knows. At the same time, this unprecedented event may provide an opportunity to rethink supply chain strategies and designs for a Post-COVID age.

This new orientation goes beyond the simple trade-off analysis between efficiency and resilience over the classical decision criteria on transportation, sourcing, information and technology, manufacturing, facilities and network. Indeed, the true pillars on which a supply chain strategy must be based on are those that enhance the resilience of supply chains as well as their performance in terms of efficiency and responsiveness.

This new approach to supply chain strategy is not a kind of revolutionizing theory but a junction of several approaches to supply chain management that have been proposed over the last decades.

We have identified four fundamental pillars on which supply chains should base their design process to achieve an effective balance between responsiveness and efficiency as well as improve resilience. These are: Disruptive Technologies (Supply Chain 4.0), a Knowledge-based Supply Chain, a Lean Supply Chain and a Sustainable Supply Chain.

Supply Chain 4.0
One of the hottest topics in supply chain management today is Supply Chain 4.0. It’s of interest to practitioners and academics alike. Supply Chain 4.0 is based on Disruptive Technologies, also known as Industry 4.0 Technologies, which aim to improve the performance of supply chains processes and provide strategic outcomes. The Disruptive Technologies include the Internet of Things (IoT), robotics, Big Data and analytics, blockchain, cloud computing, additive manufacturing and Artificial Intelligence to name a few.

Disruptive Technologies can transform supply chains into more resilient networks as they enhance the performance of key supply chain attributes such as collaboration, transparency, flexibility, responsiveness, waste reduction and efficiency. Collaboration and visibility of information are increased by focusing decision-making at companies, their suppliers and their customers on sourcing (inventory allocation, urgent orders, contingency production plans) and transportation (faster routes planning, rapid delivery).

In addition, companies benefit from Industry 4.0 technologies in terms of production plans and demand prediction (Big Data and analytics with cloud computing and Artificial Intelligence) and rapid production (Additive Manufacturing and Robotics with IoT). Moreover, efficiency and productivity are gained through waste reduction and the improvement of the ratio between outputs and inputs.

A Knowledge-based Supply Chain
Knowledge Management is a crucial element of Supply Chain 4.0. New processes enabled by Disruptive Technologies require high capabilities in terms of creation, dissemination and application of knowledge, mainly with regards to tacit knowledge. Knowledge in supply chains is related to aspects such as structure configuration, processes flow, human skills and management methods.

For instance, processes and structures of supply chains cannot be effectively structured around and operated by new technology without accurately capturing, communicating and applying the knowledge linked to these two elements. Nonetheless, strategies related to Knowledge Management can lead to the development of core competencies and competitive advantages.

The explicit and tacit knowledge embedded within supply chains might be a strong source of differentiation when it comes to the performance of processes. This might be related to innovations in terms of the products and services a company brings to market.

A Lean Supply Chain
The concept we now call Lean was developed by Toyota as a way to improve manufacturing operations. Lean operations focus the elimination of all non-value added activities, or waste. Today, more than 30 years after the term Lean was coined, it is not only recognized as a ‘best practice’ to manage manufacturing operations but Lean is now applied to the management of supply chains.

To achieve the benefits of a Lean Supply Chain, companies must adopt its principles and practices throughout their supply chain, both internally and externally. However, since Lean focuses on reducing inventory (work-in-process, raw materials and final products) by practising just-in-time production and delivery, the unexpected disruptions caused by events such as COVID-19 may make the swift recovery of supply chains more challenging.

Nevertheless, if organizations are able to reconcile the trade-offs between being lean and resilient, based on criteria such as performance goals and uncertainties, a better convergence between resilience and efficiency can be achieved.

The Disruptive Technologies referenced above can also contribute to reconciling lean and resilient characteristics of supply chains, by enabling information sharing to enhance and formulate more effective inventory replenishment policies. The ultimate objective is to have a robust, resilient but still efficient supply chain.

A Sustainable Supply Chain
Sustainability is an important dimension in supply chain management. Organizations must now consider their wider responsibility for the social and environmental impacts of their operations. However, Black Swan events such as COVID-19, natural or manmade disasters, or some combination of these may result in organizations relaxing their sustainability targets.

We believe supply chains should be resilient enough to cope with uncertain disruptions without compromising their sustainability and corporate responsibility goals (See figure below). This requires the formulation of supply chain strategies that are simultaneously resilient, lean and responsive – and sustainable. This will remain important in a Post-COVID age.

Note that these four pillars are interconnected to each other, and that there is a cause-and-effect relationship between them. The implementation of a Supply Chain 4.0 is not possible without a focus on Knowledge Management. Lean and Supply Chain 4.0 are not mutually exclusive but complementary one to another. Also, Disruptive Technologies, Lean and Knowledge Management will contribute to more sustainable supply chains.

The four fundamental pillars discussed here will be essential in Post-COVID, as supply chains adapt their strategies and designs to meet new demands. And, while this has been a period of unparalleled disruption, there is also an opportunity to rethink supply chains in a holistic manner, joining the significant practical and theoretical contributions made so far with the aim to make supply chains more efficient and resilient to face future challenges.

Guilherme F. Frederico, Ph.D. is Associate Professor of Operations and Supply Chain Management at School of Management - Federal University of Paraná – UFPR – Brazil and Visiting Research Professor of Centre for Supply Chain Improvement at University of Derby - UK. He can be reached at: [email protected].

Jose Arturo Garza-Reyes is a professor of Operations Management and Head of the Centre for Supply Chain Improvement at the University of Derby, UK. He can be reached at: [email protected].