Why Supply Chains Must Pivot

Even today’s most digitally advanced supply chains still try to predict what will happen, then optimize performance against plan. The problem is, the world is not predictable.

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When Nestlé, the world’s second biggest food and beverage company, chose José Lopez to serve as its global chief operations officer, he shared the exciting news with his mother. “But what does that mean, exactly?” she wanted to know. Lopez could have explained that he would be responsible for manufacturing spanning 440 factories in 86 countries, as well as supply chains including customer service and physical logistics across 1,300 warehouses and shipment points. Instead, he simply replied, “It means I will be blamed for whatever goes wrong.” Operations executives tended to receive that anecdote just as Lopez delivered it — with a wry smile — because it captured the essence of their daily reality.

Working with operations executives across various industries, we’ve heard many similar sentiments articulated about the changing nature of the demand curve and the element of uncertainty in the supply chain in the digital age. For operations teams, the challenge and competitive advantage becomes: How well do you respond and execute against ongoing uncertainty?

Chaos Is Normal

This central challenge points to a truth most companies have yet to fully contend with — the world is not predictable. In fact, chaos is normal. Timetables and priorities shift. A supplier fails to deliver. You get hit with costs no one saw coming. Some surprises are bigger than others, but when you’re the one who still has to get the job done, no surprise feels small.

Further, demands on supply chains are increasing exponentially as companies vie to meet consumer desire for more personalized products and services, delivered exactly when and where they specify, very quickly, at the same low cost. Just a few years ago, supply chain performance was all about batch quantities, timetables, and lead times. Now companies are shipping millions of packages a day, many with just one or a few items. Trailblazers like Stitch Fix and Warby Parker actually encourage customers to order multiple sizes and colors of the same item, choose the one they like best, and return the rest.

Yet, in the face of this upheaval, supply chains still try to predict what will happen, then optimize performance against plan. More often than not, those plans are not met. This generally triggers nonproductive finger-pointing, even when the failure stemmed from unanticipated challenges rather than poor execution.

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An MIT SMR initiative exploring how technology is reshaping the practice of management.
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Comment (1)
Dr Rabindranath Bhattacharya
Dr. Rabindranath Bhattacharya, Adjunct Professor, IIT Kharagpur
Thanks for the nice article. Adaptability must be in in synchronisation with capability build up. If we build up our capability without being flexible results would be disaster. I remember one incident in my life a decade back which is worth mentioning here. An engine manufacturer of UK came to us to develop the water and oil pumps along with timing cover for their engines. They did not have the drawings of individual items but was in a position to provide us with the fixing dimensions and the space available  around the engine block. We did not have the capability to design pumps but have been manufacturing these as per the drawings of the customers so long. In fact we had been slowly building up our design capability in R&D and  this enquiry came to us at the right time. We accepted the offer and supplied the complete thing as a package in record time. The design was ours and we submitted it for patent at a later date. Had we not been flexible in our approach we would have missed a golden opportunity of becoming a global player. Adaptability and capability build up should go hand in hand in a Supply chain. RFID tag introduction was also in the pipe line simultaneously.