In early October, nearly 50,000 workers across the U.S.’s East and Gulf Coast ports went on strike. While the dock and port workers reached a tentative deal three days later, the impact of the stoppage was felt nationwide. A backlog of unloaded containers with products from bananas to auto parts to oil increased prices and led to near-term shortages. It was the biggest stoppage of its kind in nearly 50 years.
These kinds of disruptions are now the norm, and supply chain leaders are rethinking their strategies to combat them. What if the strike lasted a month? How would a business ensure supplies and operations could continue? These are the questions a leading energy technology company asked themselves as the strike loomed.
Anticipating delays to their business, the company jumped into action as the chatter of a potential strike increased. The company implemented a robust strategy that mixed supply chain design and risk management processes. First, they established a risk monitoring system, rating the possibility of delays and disruptions across different areas to evaluate their impacts on supply chain operations. Areas with heavy impacts from the port strikes, for example, were marked high risk. Decision-makers were then able to pinpoint the supply chain’s weakest links and used a digital twin to test alternative routes and suppliers to avoid failure at such links.
Second, the company created contingency plans before the strike occurred, enabling the company to avoid any delays during the three-day strike. This company essentially created an Adaptive Supply Chain.
What is an adaptive supply chain?
An adaptive supply chain is flexible and resilient, capable of adjusting quickly to sudden disruptions, material shortages, changes in demand, or unexpected events. Unlike traditional supply chains that react to what’s happening, an adaptive supply chain proactively identifies potential challenges and opportunities for improvement. This gives companies a competitive advantage in uncertain times. In practice, resilient companies with dynamic supply chains that resemble the ideal adaptive supply chain capture 3.6% more revenue than their peers, according to a recent Accenture report.
How do adaptive supply chains anticipate and evolve from the disruptions that have become so commonplace today? The answer lies in three key areas: integration of data and processes, antifragility through scenario-based planning and proactive risk mitigation, and optimization with AI-powered tools and a highly skilled workforce.
Integrated
Most companies understand the importance of data integration, but few have actually achieved the level required to navigate the turbulence of today’s economic environment. Complete, accurate data is vital to understanding operations at all levels — from suppliers to factories to logistics — and for controlling and responding to disruptions. Yet, only 16% of companies have the ability to visualize and control their operations.
Companies need to integrate systems and workflows from across the organization. Bringing procurement, production, distribution, and finance together empowers companies to make more informed decisions.
What holds companies back
Many organizations point to the limitations of traditional advanced planning systems (APS), which are common IT systems that solve short-term supply and demand fluctuations. While APSs are widely used by businesses, they fall short when it comes to addressing strategic decisions that involve multiple variables across time.
In addition, data silos across departments, inconsistent processes and data formats, and resistance from employees to change existing workflows are other challenges to achieving full integration.
A path forward
Investing in technology that continuously centralizes and aggregates data, streamlines processes, and provides a digital twin tool is a must. This type of technology supports an integrated scenario planning (ISP) approach. ISP addresses the limitations of APS by creating an integrated core, facilitating comprehensive scenario analysis, and translating strategic decisions into executable work plans. The result is that ISP helps organizations look at the supply chain from a strategic level (including network design, supplier risk, transportation routes, and more) to enable more degrees of freedom to model the problem and find a truly optimal solution.
Supply chain leaders across various industries see these kinds of technology solutions as critical components of success today. According to a McKinsey report, 90% of leaders say they’re planning to overhaul their current planning IT system.
Antifragile
Organizations that are building adaptive supply chains can identify potential disruptions, understand their impact on operations, and take proactive steps to mitigate them. To achieve a truly adaptive supply chain, real-time risk and compliance data monitoring and advanced scenario planning tools (like a digital twin) are required to spot potential problems and create alternative solutions before they impact operations and the bottom line.
You can’t plan if you can’t see what’s coming
For nearly 60% of companies, it takes at least a week to be alerted to a disruption in their production or supply network. Once a disruption is detected, 80% of executives say it takes an additional week or more to evaluate its impact on operations. This delay yields a reactive approach to disruptions, forcing companies to play catch-up and implement hasty decisions, all leading to increased costs, operational inefficiencies, and damaged customer relationships.
Other challenges include a lack of visibility into supplier operations, poor communication between stakeholders and external partners, and resistance to adopting new technologies that support real-time data analysis and prediction modeling.
A path forward
Companies can transition from a reactive to a proactive approach by using the right mix of technology, data, and collaboration. They should seek to implement a risk management system that utilizes real-time data from various sources, including supplier networks, market conditions, and internal operations. With a robust view of risks, companies should then use a digital twin and predictive analytics to simulate and analyze different scenarios, helping to identify potential bottlenecks and vulnerabilities.
Companies should also seek to collaborate more closely with their suppliers using open communication channels and streamlined workflows to facilitate faster problem-solving during disruptions. By sharing critical information — such as forecasts, capability, and delivery schedules — buyers and suppliers can identify potential issues early and work together to respond to unexpected challenges quickly.
With a playbook for handling different kinds of disruptions, companies are prepared for whatever comes their way.
Optimized
With erratic economic conditions, consumer preferences changing frequently, and supply chain disruptions now the norm, it’s no wonder many chief finance officers (CFOs) are concerned about hitting sales goals. Nearly 90% of them worry they won’t hit their revenue targets this year, according to Coupa’s Strategic CFO survey.
Long-term, sustainable growth for businesses requires optimizing operations and improving efficiency, and the supply chain can play a key role in that. By embracing AI and empowering employees with advanced skills and tools, businesses can improve operations at all levels.
Skepticism around AI-powered optimization
AI is a new technology, and while there’s been much hype around it, what it can practically do and how to implement it remain less clear to business leaders. A major obstacle is getting employees to buy in and adopt AI tools. If leaders don’t provide clear benefits and rules around AI, employees are likely to remain hesitant and not embrace the technology.
A path forward
First and foremost, AI only works if it has the right data. Ensuring the right data infrastructure (like the integration capabilities we mentioned earlier) will be critical to maximizing the technology’s potential. It’s also important to create a clear AI implementation plan around tools, training, and tactics for employees.
AI has the power to automate routine tasks, freeing employees to train on more advanced tools, like a digital twin. It also has the power to transform sustainability in the supply chain. AI-powered scenario modeling can be used to optimize transportation, reduce emissions, and minimize inventory waste. Technology is powerful, but it only works if the people who work with it feel confident and comfortable using it.
Start embracing the Adaptive Supply Chain
Embracing a proactive supply chain design and planning approach is no longer optional. It’s a must in today’s fast-paced, constantly changing world. Companies that embrace real-time data, supplier collaboration, and advanced AI technologies will do more than just survive in today’s environment. They’ll thrive.
This type of supply chain is more than just a nice description — it’s an essential and key differentiator. It’s an ideal state that is achievable with the right technology, people, and processes. That’s why at Coupa, we talk about enabling the Adaptive Supply Chain.
Learn the six strategies that can help you enable the Adaptive Supply Chain at your company. Explore real-world use cases that show how these strategies are helping companies like yours navigate and succeed despite uncertain market conditions.
