Supply Chains Belong at the Top of a CEO’s Agenda

(From HBR article by David Garfield  Global Head of Industries and a member of the Board of Directors of AlixPartners. He is based in Chicago… a few imp takeaways due to page restrictions)

 It implies some kind of equilibrium, the notion that we can find and stay in a place where things are safe and balanced, where the earth won’t suddenly shift beneath us and send our premises and plans tumbling down. That’s what’s people think is happening with supply chains — and it’s a mistake.

After the big Covid-19 whipsaw, the most obvious forms of supply chain distress started to fade away…CEOs in particular seem to have relaxed: We found that they were less likely than other executives to worry that disruption would hit their supply chains in the coming months.

The relative peace and quiet that executives are perceiving is actually ominous. Under the surface, supply chain risk has become severe, systemic, and strategic. Addressing the risk cannot be left to procurement and operations teams alone, however smart and skillful they are. Boards and CEOs need to put supply chains back at the top of their agendas. Here’s what the current landscape looks like — and how leaders can address today’s supply chain challenges.

Three trends have made supply chains fundamentally less stable than they had been for two decades pre-Covid. These aren’t simply short shocks (think dock strikes, for example), but deep changes that imperil operations, sales, margins, and ultimately enterprise value..

Many of geopolitical flash points are near shipping choke points: the Suez Canal and Strait of Hormuz, the Straits of Taiwan and Malacca. The lack of a U.S. foreign policy consensus, coupled with the increasingly nationalistic policies of China, Russia, and India, means that there is no structure in place to defuse or dismantle these conflicts.

World trade has become less open. According to the World Bank, nearly 3,000 new trade restrictions were imposed in 2023, a fivefold increase since 2015.

There are five ways that CEOs and boards can exercise supply chain leadership while not bogging themselves down in tactical issues…

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CEOs and boards can push for and monitor operational flexibility…

Organizational flexibility can be a powerful defense against disruptions in supply, operations, and distribution…

Technology can give senior leaders much more visibility into — and more responsibility for — what’s happening in their supply chains….

Technology is now advancing to the point where it can transform supply chains, not just optimize them. Generative AI is having step-change impact on strategic elements of supply chain management, like identifying and evaluating potential partners and backups. It is also becoming able to predict risk, not just identify it (for example, by detecting early warnings of financial distress at a supplier), and to propose risk-mitigation strategies based on scenarios. These advanced capabilities go beyond optimization; they have the potential to disrupt the economics of companies at every link in the supply chain, from beginning to end.

CEOs and boards cannot oversee operations from a distance, looking at dashboards and dropping in from time to time to tour a plant. They need to dig deeper to understand where vulnerabilities and opportunities are and discover what they can do to avoid the first and seize the second, and ensure that their companies take full advantage of newfound capabilities to visualize, analyze, and strengthen supply chains. A leadership team that provides financial, operational, and organizational flexibility and understands that today’s supply chains require new thinking — not just tinkering — can reduce the odds that they’ll have to respond to crisis in this era of disruption.