Rethinking Supply Chain Resilience: Insights for Strategists
The past several years have seen a significant shift in focus toward supply chain resilience. This trend began as early as 2017 with increasing tariffs and trade wars between the United States and China and only intensified during the COVID-19 pandemic. The once-given assumption of easy access to global markets has been replaced by a complex web of challenges and uncertainties.
We spoke with Ben Clark, an Outthinker Networks member and SVP and Chief Strategy Officer (CSO) at global logistics and freight forwarding company, Expeditors. He shared the top supply chain challenges strategy leaders should be focused on in the near-term.
"The models that predominated ten years ago, which were all functions of optimizing costs, have to take into account new parameters, such as geopolitical stressors, landed cost analyses, and performance of supply chains when they’re distressed. These are getting heightened awareness."
Supply Chain Challenges for Strategy Leaders
Key logistics challenges for companies today include:
- Geopolitical tensions: Ongoing conflicts and disputes in various regions, including the Red Sea, South China Sea, Israel-Hamas, and Russia-Ukraine, are causing significant disruptions to global supply chains.
- Climate and infrastructure issues: Events like the drought in Panama, which has caused vessel restrictions in the Panama Canal, are impacting traditional shipping routes.
- Labor negotiations: Potential strikes and collective bargaining agreements, such as those with the International Longshoreman’s Association on the US East Coast, add another layer of uncertainty.
- Changing market dynamics: The rise of e-commerce providers takes a significant amount of air freight capacity out of the market and has an impact on pricing.
- Regulatory changes: Potential tightening of the de minimis exemption in the US could significantly impact cross-border e-commerce.
"This is a really strained supply chain ecosystem given all these geopolitical tensions hitting at the same time."
These multifaceted challenges are creating a highly strained supply chain ecosystem, forcing companies to rethink their strategies and prioritize resilience over pure cost optimization.
How Companies Are Increasing Resilience
In response to these challenges, organizations are adopting various strategies to enhance their supply chain resilience:
- Building redundant capacity: Companies are seeking alternative manufacturing sources, often implementing a “China plus one” strategy to reduce dependence on a single region.
- Reevaluating models: The cost-optimization models that dominated a decade ago are being redrawn to account for new parameters such as geopolitical stressors, landed cost analyses, and supply chain performance under stress.
- Adjusting inventory strategies: Some companies are reconsidering their safety stock levels, despite the impact on working capital and inventory costs.
- Exploring new markets: There’s growing interest in sourcing from regions like Mexico, Eastern Europe, and South Asia, with intra-Asia trade on the rise.
- Strategic sourcing: Companies are carefully considering the geopolitical implications of their sourcing decisions and seeking expert advice when extending their supply chains into new areas.
"The 2000s and 2010s were typified by optimizing from a working capital and inventory standpoint. Suddenly this qualitative dimension becomes much more important – do we have supply chain resilience?"
Recommendations for Chief Strategy Officers
For CSOs tasked with setting up logistics and supply chains for the next decade, Clark offers several key recommendations:
- Elevate supply chain teams: Recognize the strategic importance of your supply chain professionals and include them in high-level decision-making processes.
- Integrate supply chain considerations in M&A: When considering acquisitions, include supply chain implications in your due diligence process. Acquisitions can provide access to manufacturing or logistics capacity that can reduce dependencies.
- Stay adaptable: Don’t assume the existing supply chain network will remain static. Be prepared for shifting trade lanes, unpredictable rates, and changing duties.
- Leverage technology wisely: While AI and machine learning have potential in logistics, be cautious about over-automation in periods of instability. Human expertise remains crucial for navigating complex international regulations and shifting geopolitical landscapes.
- Focus on Value: Make sure that cost is only one of the factors you consider when building your supply chain. Undervaluing other factors, such as coverage, reliability, compliance and resilience, can lead to business and reputational impacts that can often overwhelm any putative cost saving.
“Recognize that your supply chain teams have a strategic remit... The strategic overlays, the geopolitical and the macroeconomic stressors that impact your supply chain teams are big. Invite your supply chain and logistics individuals to the table to think through strategic decisions and even acquisitions.”
Final Thoughts
As the logistics landscape continues to evolve, CSOs must balance the need for resilience with cost considerations and technological advancements. The key to success lies in fostering adaptability, leveraging human expertise, and maintaining a strategic view of the entire supply chain ecosystem.
By rethinking supply chain resilience and implementing these insights, strategy leaders can help their organizations navigate the complexities of modern logistics and build more robust, flexible supply chains for the future. As Clark emphasizes, the most successful companies will be those that can adapt quickly, learn continuously, and strategically integrate new approaches into their supply chain management.
About Outthinker Networks
Outthinker Networks brings together two executive peer networks – the Outthinker Strategy Network and the Outthinker Innovators Network – to help senior strategy and innovation leaders solve their most pressing challenges and keep their organizations ahead of the pace of disruption.
Are you a strategy, innovation, or transformation executive interested in joining one of our networks?
Authors
