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.
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.
Dr Rabindranath Bhattacharya