Three strategies to prepare supply chains for sustained disruption

With 2022 underway, most supply chains are facing unprecedented market conditions resulting from massive spikes in demand amid severe global bottlenecks. The gridlock faced today has been caused by many factors. But ultimately, gridlock is a consequence of an extended period of frequent, unfamiliar and high-impact risk events disrupting supply chains across industries and across regions.

Over the past year, traditional mitigation strategies employed by CSCOs to improve their response times to events were overwhelmed by the sheer volume of risks disrupting their organization. The effectiveness of their response was also impacted because it wasn’t solely their supply chain trying to meet unprecedented demand.

In the year ahead, as we prepare for more widespread disruption, CSCOs need to make three changes to best prepare their organization:

1.) Establish a New Supply Constraint Playbook

The classically used playbook for managing supply chain constraints is built upon the assumption that constraints are both temporary and isolated. Most of the time, these strategies can get CSCOs through a short, unexpected period of constraint. But the current environment is marked by semi-permanent, or even permanent, constraints in some cases. And the constraints are widespread, not isolated.

This means the traditional constraint playbook for the supply chain is insufficient to respond to the situation facing supply chains today. Following only that playbook, supply chains can expect to find themselves in a very similar situation, or a worse one, months from now.

When supply chain leaders know the supply chain constraints are semi-permanent and widespread, rather than temporary and isolated, they must examine their end-to-end processes and look for opportunities to make adjustments now across supply chain functions and capabilities. Making those changes now can help improve their situation in six- to nine-months’ time.

2.) Increase Flexibility and Constraint-Avoidance Capabilities

CSCOs must optimize for flexibility and avoidance of constraint in the future. Flexibility will help them adjust to unanticipated supply constraints and can be incorporated across functions. Supply chains can extend their time horizons for S&OP and S&OE. They should revisit their category strategies now and define trigger points for knowing when categories are at risk for long-term constraints. They should invest in flexible capabilities now, and then work with commercial partners and customers to use existing product whenever possible to meet customer needs given available inputs.

Avoidance enabled by good long-term planning also will help them maintain supply to meet demand in the longer term. Supply chains should reinforce constraint-based planning capabilities. They should become customers of choice in sourcing, manufacturing and logistics. It’s also important to collaborate with product development and customers to adjust products based on components likely available for the long-term despite the constrained environment.

3.) Limit Disruptive Events in the Supply Chain

Our research shows that supply chains have, on average, experienced five high-impact, unfamiliar disruptions each year since 2019. We also learned that most supply chains focus on improving their responses to these events by leveraging agility, visibility and resilience.

However, the high cadence of these risk events disrupting supply chains has overwhelmed these response strategies. To better navigate this highly volatile risk environment, CSCOs need to reduce the number of risk events that disrupt their supply chains in the first place.

This can be accomplished by integrating risks into their supply chain’s strategy at the planning, not just the execution phase. It is also important to optimize the surface area of the supply chain to reduce exposure to both a single catastrophic risk event as well as the cadence of disruptions. They can leverage this activity for competitive advantage, as well.

With factors such as the pandemic, an increasingly inflationary environment and an anticipated increase in the cadence and severity of climate-change related disruptive weather events, the current situation is unlikely to improve in the next year.

This new environment requires CSCOs to make new assessments of the market and determine for their organization how temporary or permanent and isolated or widespread the constraints are that they’re experiencing today. Alignment with enterprise partners on the assumptions they make and creation of scenario plans will be critical in preparing their supply chain for the unexpected and reducing the ramifications of events on their organization.

About the author: Suzie Petrusic, PhD is Director, Gartner Supply Chain Practice serving Chief Supply Chain Officers in all the areas of supply chain related to strategy leadership and execution. Ms. Petrusic authors and co-authors research and case studies on topics such as risk, supply chain maturity, the future of the supply chain, and supply chain constraints.

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