How to Prevent Failures in a Rapidly Growing Supply Chain

By Carlos Valderrama, SVP Industry Strategy at Optilogic.

This post originally appeared in Supply Chain Connect.

Supply chains all have breaking points when stressed too far, and the challenges of the real world today present plenty of stress: geopolitical vulnerability, production capacity limits, raw material availability fluctuations, labor shortages and highly volatile demand patterns to name a few. Any supply chain that isn’t nimble enough to adapt to changing market conditions can open a company up to the pitfalls of supply shortages, excess inventory, late orders, costly rushed shipments and unhappy customers. In short, an inflexible supply chain can quickly become a broken one.

The best way to mitigate this risk is by ensuring a company’s supply chain design allows for the exploration of many potential futures. Doing so helps companies “see around corners,” so they can understand—and prepare for—the monumental impacts that various “what if” scenarios might present. The result is companies can increase their overall resiliency and responsiveness to the changes that are inevitably coming their way by reducing needless risk and preparing for challenges that may lie ahead. In addition, a dynamic supply chain design helps companies gain invaluable insights into key performance drivers, weak spots and other factors that might inadvertently create liabilities the company could otherwise avoid.

However, the benefits of a dynamic supply chain design don’t stop there. Companies can also leverage these insights to identify opportunities to reduce costs, improve service and anticipate demand shifts.

Supply Chain Growth and Stress Demands a Solid Plan

Growth is what nearly every company seeks, and almost always demands supply chain adjustments to handle the added stress. Growth can come in many forms: added complexity, new regions, expanded product offerings and changing customer demand. And they can bring with them new requirements and needs when it comes to supply chain relationships, transportation providers, modes of transportation and distribution centers.

For example, acquiring another company, launching operations in a new market or expanding into a new industry or vertical often requires significant supply chain updates. Any scenario like these calls for a solid plan, a meaningful way to measure results to determine what is working and what is not and a nimble supply chain.

Another potential scenario that can require a shift in a company’s supply chain is when new trends driven by customer demands require a reinvented or retooled approach to logistics. An example of this is when customers began expecting free returns as the new standard. When this occurred, it put significant strain on many companies’ supply chains because they suddenly had to double what they did operationally.

How to Plan for Growth with Built-In Flexibility

Once a company identifies which of the three types of growth they need to prepare to accommodate—demand, restructuring operations based on new customer demands or complexity (e.g. acquiring another company and then blending supply chains, or expanding into a new market)—they can better plan for it.

Regardless of which kind of growth a company is planning for, it requires significant supply chain flexibility. The company needs great relationships with suppliers, warehousers and transportation providers, who are intimately familiar with these new markets or shifts. In other words, the better the relationships and contacts a company has in each new location, space or sector, the more flexible its supply chain will be.

By building in flexibility, companies can reap significant dividends. The next step is developing measurements and then putting them in place to determine how flexible the current supply chain actually is. This also ensures companies are aware of the things they might need to change as their supply chain continues to grow.

The Pitfalls of Supply Chains Not Prepared for Growth

Companies with supply chains that are ill-equipped to handle the demands of growth may disappoint customers, be unable to fulfill their needs or unravel the flow of their business. And, once the supply chain breaks completely, there is little the company can do to fix it.

For example, when Amazon started to discuss same-day returns, it greatly strained retailers because most of them were not ready for the change. Many companies took a big hit when this occurred, because they didn’t have the flexibility or processes and people in place to handle these returns.

When Alibaba decided to provide “within-an-hour” delivery in China, for instance, it was able to achieve this seamlessly because the company enabled individuals to use their personal pantries as warehouses and, by logging into an app, make money by simply delivering a bag of chips to a nearby neighbor.

Developing Supply Chain Design Competency Is Critical to Success

Success in supply chain design doesn’t require a big investment or huge internal infrastructure. Instead, the focus should be on supply chain design competency development throughout the organization.

By using supply chain design to understand the cause and effect, and what the current supply chain can or can’t do, companies can ideate possibilities and alternatives that set them apart. While many mistakenly believe that centers of excellence (COEs) with big teams in place are the solution, these are not always a recipe for success.

Revealing Bottlenecks Before They Happen

Supply chain design can also reveal where companies have and could have bottlenecks. Using simulation, analysts can run current orders or potential orders for new products to understand where they fell short on capacity, distribution delays, transportation challenges and more, as well as identify strategies to avoid them. Supply chain design solutions can help companies sift through their options and get out ahead of potential problems before they become real world problems.

Why Supply Chain Design is Not a Luxury

As with any other core competency that makes a company competitive and thrive, supply chain design requires the right people, technology and processes. Companies that invest in supply chain design develop standardized language that helps them better understand how to improve supply chain structure, policies and rules—rather than making hierarchy- or guesswork-driven decisions.

While many still believe supply chain design is like insurance—that companies probably don’t need it unless things go sideways—that’s false. Design enables companies to predict how the supply chain will perform and rapidly test thousands of potential changes in a risk-free environment—so as your industry changes, or when you’re hit with unforeseen events, you’ll be prepared to thrive.