4 minute read 19 Dec 2019
Aerial view of container terminal tollerort hamburg

How play-it-safe and double-down strategies work for supply chains

4 minute read 19 Dec 2019

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Business leaders should enable both their own organization and supply chain partners to survive and thrive in challenging times.

Today’s business press sends many conflicting messages about the economy and other topics. There are constant headlines about geopolitics, climate change, social issues and many other subjects with differing premises and conclusions. Society has become more polarized, creating even stronger opinions and more confusion. As a result, there is no doubt that we are operating in an era of great complexity and uncertainty.

Three powerful ingredients are combining to create a cocktail of complexity and uncertainty. Firstly, geopolitical tensions are arising from growing competition between countries, which are exacerbated by nationalism and populism. Some obvious examples of geopolitical tensions include the US-China trade and currency dispute, Brexit and the recent attack on Saudi Arabia’s oil facilities.

The second ingredient is societal change. Today, the first digitally native generation — Generation Z — is entering the workforce. At the same time, wealth inequality is causing protests and unrest, while societal expectations of companies are changing. It is no longer seen as acceptable that companies exist purely to create shareholder value; they must have a purpose and positive social impact as well.

Finally, we see digital disruption and accelerated technological change. These are resulting in new technologies, new products, new business models and new market entrants that can scale their operations at a faster rate than their predecessors ever achieved in the past.

So, what does this period of complexity and uncertainty mean for business leaders? Fundamentally, it means that they need to prepare their companies to withstand volatile market conditions. As part of this preparation, they will naturally need to review how they manage every aspect of their supply chain, from the sourcing of raw materials and component parts through to the manufacturing process itself and the distribution of finished goods.

Leaders should begin a review of their organization’s supply chain by asking themselves some fundamental questions. For example, can the business respond quickly to fluctuations in demand? Does it have the capabilities to drive down the cash conversion cycle? Is it reliant on a mostly fixed, full-time workforce? Does it have visibility of sub-tier suppliers that might cause supply disruption?

Once they understand the current readiness of the business to withstand volatility, leaders will then be able to apply tools and techniques to enable both their own organization and their supply chain partners to survive and thrive in challenging times. Any business that is serious about surviving and thriving in turbulent times needs to both play-it-safe and double-down. What’s more, historical data shows that organizations that follow both approaches benefit from upsized returns in the next business cycle.

What do I mean by play-it-safe and double-down? Playing it safe is about protecting and optimizing your business. Typically, in supply chain it involves improving overall equipment efficiency and manufacturing performance, driving utilization for transportation networks, taking advantage of strategic sourcing to consolidate volumes and rationalize supply bases, and reducing cash-to-cash cycle times with a focus on accounts payable, accounts receivable and inventory.

Doubling down, on the other hand, is about applying entirely new techniques and tools to reinvent your supply chain. The goal for your supply chain is transformation from a linear model into a networked ecosystem, where your enterprise gains true end-to-end visibility of your supply chain as well as its risks. With a networked ecosystem, all the data pertaining to the supply chain resides in the cloud so that when an event happens — for example an unexpected drop in demand — it can be seen by all players in the ecosystem and acted on simultaneously.

The techniques involved in doubling down include intelligent automation, applying advanced analytics to supply chain processes, digitizing smart factories, creating digital twins of your supply chain to optimize and innovate, as well as creating end-to-end visibility leading to supply chain orchestration. All these techniques are critical to survival in the world of what we call superfluid markets.

My colleague, Janet Balis, describes it this way: “Superfluid is a term appropriated intentionally from physics. A superfluid displays little to no viscosity, allowing it to move faster and take new shapes. It’s the difference between how honey and water move. And reducing viscosity seems an appropriate metaphor for how everything is now flowing more easily through marketplaces. As disruptive technologies continue to proliferate, supply and demand connect in new forms at faster speeds, and we increasingly achieve superfluid markets.”

It is only through playing-it-safe, as well as doubling-down, that organizations should emerge stronger — with outsized returns — when an economic slowdown has passed.

And while not all industries are affected by superfluid markets, technologies such as internet of things (IoT), blockchain and artificial intelligence are reducing market friction at a rapid rate says Balis. In a world of superfluid markets, hard boundaries between companies, and even sectors, are eroding, companies need to be able to scale their workforce up and down with ease, interact seamlessly with their suppliers, and consider offering products and services to customers that they have never served before.

We are only at the beginning of this business cycle. Companies, suppliers and customers are forming networks that make transacting and collaboration easier as traditional frictions dissipate—all with the goal of coming out of economic slowdown stronger than before.

Clearly, a networked ecosystem that thrives in superfluid markets is not something that emerges overnight. It is the result of strategic planning, investment in new technologies and engagement with third parties. It is for this reason that EY teams developed its own Supply Chain Reinvention framework to support clients that want to make the switch from a linear supply chain model to a networked ecosystem.

Yet it is only through doubling down, as well as playing-it-safe, that organizations should emerge stronger — with outsized returns — when the economic slowdown has passed. The enterprises that engage in this strategy will succeed at transforming themselves into cost-efficient, resilient and flexible enterprises that will flourish in the turbulent times ahead.

Summary

In turbulent times, play-it-safe and double-down are the right strategies for businesses to reinvent their supply chains.