New strategies for global business leaders to manage supply chain risk

Myriad disruptions demand a strategic supply chain shift. Here’s how flexibility and supplier diversity can keep you resilient and ahead.

Three questions to ask:

• How can organizations effectively transform supply chain risks into strategic advantages in today’s volatile market?
• What strategies can be implemented to enhance operational resilience and help ensure supply chains adapt quickly to unexpected disruptions?
• In what ways can technology and data analytics be leveraged to drive innovation and improve responsiveness within supply chains?

To enhance corporate strategy and effectively manage supply chain risk, organizations should prioritize positioning their supply chains as essential hedging mechanisms. Given that supply chains represent a significant portion of overall corporate operational spending, leveraging them as tools for risk management becomes crucial. While focusing on efficiency improvements is important, it is equally vital to transform the supply chain into a robust tool for risk management. By doing so, organizations can help ensure resilience and adaptability in an ever-changing market landscape.

Elevating the role of the supply chain

Disruptions tied to rising economic volatility, escalating trade wars, retaliatory actions, global conflicts and climate impacts have become the “new normal” for business. Organizations that have supplier concentration in a particular geography face additional supply chain risk. To help mitigate these risks, the ability to develop and secure more flexible arrangements with suppliers represents an important strategy for managers seeking to leverage the supply chain as a strategic partner, one that proactively identifies new suppliers for materials crucial to the business.

Achieving this goal will require supply chain executives to reinforce the supply chain’s position as a strategic asset in the eyes of the C-suite. While pandemic-related disruptions initially elevated the supply chain to a board-level priority, many organizations have sought to sustain that visibility through ongoing technology investments and resilience initiatives. The current challenge lies not only in regaining the C-suite’s attention but also in working to ensure that the supply chain remains strategically relevant in a landscape where change is constant.

Employing supply chains as proactive hedges

Mitigating supply chain risk has taken on increasing importance as organizations seek to improve operational resilience and minimize disruptions that result in financial losses, damage to brands and dissatisfied customers. A robust hedging strategy empowers organizations to help establish flexible logistics solutions, maintain optimal safety stock levels and diversify their supplier base. This approach can assist in mitigating the impact of unforeseen events, such as natural disasters or geopolitical disruptions, helping to ensure continuity and resilience in the supply chain.

By adopting this overarching strategy to supply chain risk, organizations can amplify their ability to:

• Develop more agile and responsive processes: This better enables organizations to quickly adapt to changes in demand or supply, helping to ensure continuity of operations and minimizing disruptions.
• Anticipate future disruptions: By deploying advanced strategic planning through data analytics and digital twin technologies, organizations can model potential scenarios and forecast a wide range of outcomes, enabling greater operational resilience.
• Manage costs more effectively: Aligning supply chain operations with financial objectives provides a direct mechanism for controlling costs and maintaining service levels, which can protect profit margins during volatile periods.

Hedging: strategies for improved operational resilience

The ability to utilize multiple suppliers and sourcing options is a key component of an operational hedging strategy. Working with a diverse group of suppliers enables organizations to establish inventory and capacity buffers, enhancing overall resilience and allowing them to adapt to changes in demand or supply. For example, a company with multiple manufacturing facilities spread across several countries could rely on a hedging approach to minimize the impact and cost of future disruptions.

Organizations that feature a diverse supplier network can also deploy digital twin technology to create virtual models for better forecasting and scenario planning, identifying which suppliers will help them respond better to potential changes in the marketplace. Embracing a comprehensive supply chain hedging strategy positions organizations to better navigate the challenges of a volatile economic landscape.

Finding common metrics for a unified approach

To succeed, a supply chain hedging strategy requires a strong collaboration between finance and supply chain leaders, anchored on common metrics and analytics. This has been an issue for supply chain leaders. An EY survey found that nearly all (97%) supply chain leader respondents say they face challenges with supply chain metrics, with only 44% currently tracking customer satisfaction as a key performance indicator. This lack of focus on customer satisfaction can lead to missed opportunities for improvement and a disconnect between supply chain performance and customer expectations, ultimately impacting the organization’s competitive edge and market reputation. Further, without the right focus on customer metrics, supply chain risks investing in resilience in the wrong places.

Looking ahead, supply chain executives need to work with the chief financial officer (CFO) and other C-suite executives to identify metrics that reflect not just efficiency but also supply chain contributions to customer service, responsiveness, innovation and risk management.

In today's volatile global landscape, the interconnectedness of risks demands that chief operating officers (COOs) and chief supply chain officers (CSCOs) forge robust alliances across finance, commercial and other critical sectors of the enterprise. This transformation is not merely operational but strategic, positioning the supply chain as a linchpin in the enterprise's resilience strategy. By pioneering advancements in these areas, supply chain leaders will be instrumental in crafting a dynamic strategy that anticipates and swiftly responds to emerging global challenges, helping to safeguard the organization's stability and impacting its long-term success in an increasingly complex world.

Special thanks to Brian Tursi, Senior Manager, Supply Chain and Operations, Ernst & Young LLP for his contributions to this article.