Organisations can build better resilience against supply chain risks
From supply chain risk to business resilience: adjusting to scarcity as a norm
We’ve witnessed years of abundant resources and commodities at low prices. Businesses must now prepare for a shift away from this era of plenty to an environment where scarcity is the norm.
As shortages of commodities ranging from copper to coffee and cooking oils increase, the assumption that resources are plentiful and easily accessible which still underpins so many businesses is no longer a safe one.
Rather than being exceptional, the scarcity we are witnessing today represents the “new normal”. As are the delays, higher costs and supply uncertainty that go alongside that.
As a result, planning the business response to the potential loss of access to key inputs is no longer about the ability to cope with supply chain risks that dissipate over time. It’s a strategic question about the risk and resilience inherent in the current operational model.
Catalysing an organisation to take action on an issue that has such wide operational implications can be challenging. But with the right approach, rapid progress can be made.
Based on our work with clients in this area over the past year or so, here is what we have learnt about how to move more quickly.
1. Focus on “the triple threat” to get ahead
Businesses may not have the capability to prepare for every supply chain interruption. However, it is already clear that the triple threat posed by climate change, nature degradation and human rights abuses present some of the most significant risks to inputs critical to a business’s operations.
Few could have specifically predicted the recent collapse of the global orange juice supply or price run in the olive oil market. However organisations who understood the climate and nature rights risks inherent in their production would have been better positioned to mitigate against their impact.
2. ESG reporting will only do some of the job
New mandatory ESG disclosure rules and regulations mean that big businesses must identify, prioritise and manage climate and nature-related risks. But the reality is that the pace of reporting cycles and deadlines doesn’t match the urgency with which businesses need to start doing things differently.
Disclosure is reactive. Some of the organisations that most need to act currently fall outside of the scope of these rules. Equally, businesses can be slow to formulate and then implement action plans.
With time to act being one of the greatest assets for a business, proactivity is key.
3. Your risk exposure won’t be what you think
Organisations will typically assume that the inputs and commodities that represent the highest spend or highest purchase volume are those that are at the greatest risk of supply interruption. This isn’t always the case.
Inputs that are key to production, used in products loved by customers or feature across your product mix are equally important. When thinking about risk and resilience, it’s important for organisations to cast the net widely and review the full mix of inputs that go into end products that are valued by customers.
Prepare to be surprised both at the nature of your biggest risks, and how little you may know about them.
4. You need to live with imperfection
Supply chain analysis should involve comparing both the situation today and a future supply scenario. Of course, no business will get a full and perfect view of current and future risks. What will emerge though is the best assessment of the areas where you need to learn more, the areas that you control and those where you need to collaborate. Plus the ability to prioritise your course of action.
The picture may be imperfect. But it’s only through shining a light and asking the right questions that it will become clear through time.
5. It’s not a job for the sustainability team alone
Sustainability leads can sponsor and guide the project. However, buying, sourcing and product teams are partners who are critical to success. This is because typically an organisation will have to buy into sourcing commodities in new ways. This means working with substitutions, reformulating products to work without scarce inputs and even cooperating with peers or competitors as well as suppliers to reduce risk. Business resilience comes hand-in-hand with strategic business evolution.
6. A commercial focus creates urgency
In some organisations, key decision makers or influencers are still ‘sustainability shy’. In these cases, the commercial outcomes that are inherent in improving supply chain risk will attract more support and resources to act than if positioned exclusively as a sustainability initiative. Think increased resilience, lower costs and better competitive advantage.
Focusing on supply chain resilience will be the best way of accelerating action around the triple sustainability threat they face and a foundation on which to build further action.
7. Organisations can deliver bigger wins more quickly
Many supply chain issues are complex, opaque and time-consuming to resolve. So it would be wrong to position supply chain resilience as an area where “quick wins” are guaranteed.
However, by bringing teams together to manage the interconnected challenges arising from climate, nature and human rights, organisations will be able to move faster and in a more coordinated way on each of these issues. This will help to avoid siloed initiatives and maximise action where these risks converge in a business.
A proactive approach to supply chain resilience should also bring two further benefits. It will smooth the path for some of the more painful demands of the disclosure landscape which are now bearing down on these businesses. It will also ensure that the action businesses are already taking to manage supply chains in the face of geopolitical risk is more robust. In turn, this will help those businesses maintain or improve competitive advantage.