SGS Maine Pointe CEO Jeff Staub on future-proofing supply chains
Jeff Staub, chief executive officer of operations and supply chain consultancy SGS Maine Pointe, recently examined how companies can future-proof their end-to-end supply chains in an article in Chief Executive.
Economic storm clouds are on the horizon, with the Bank of America and other expert sources expecting a recession by the end of the year. Whether the nature of the decline is short and shallow or a depression, companies should endeavor to future-proof their supply chain with a “read and react” strategy than can pivot quickly to changing economic and supply chain environments.
According to Staub, executives who have business continuity and enhancement plans in the following six areas will be better able to cope with the volatile change ahead.
First, companies battling uncertainty need shorter interval planning and strategy setting that continually aligns supply chains and manufacturing and distribution footprints – and better responds to demand changes and disruptions.
In a recent engagement with a large agribusiness, SGS Maine Pointe supported the company in improving its supply chain process. A key part of the project was evaluating the number, size, and location of distribution and storage sites. Combined with the implementation of digital solutions that drive visibility and decision automation, the project helped the company realize an Ebitda improvement of tens of millions of dollars.
Second, companies need to find the right approach to sales, inventory, and operations planning (SIOP). That means not allowing a single function like sales or engineering to dominate the process without meaningful input from other functions.
According to Staub, the recession will change customer buying patterns and leave previous forecasting models vulnerable. However, tightening SIOP planning cycles to ensure balanced demand while engaging previously ignored functions would better enable responsiveness.
Third, leaders need to embed resilience and optionality into sourcing and logistics. The pandemic brought forward significant disruptors including labor shortages, lockdowns, geopolitical uncertainty, and energy price shocks. To deal with such stressors, companies can look to implement optionality with the appropriate balance of onshore, nearshore, and offshore, as well as utilizing tools such as traditional dual sourcing, vertical integration, and inventory strategies.
Fourth, establishing cash management standards in the supply chain is imperative as cash takes on greater importance in a recession – and over 80% of costs and working capital typically remain tied up in supply chain and operations. To preserve cash, Staub recommends executives reset their raw material cost expectations as signs of deflation are already showing up in materials pricing. Suppliers are attempting to lock in longer-term commitments as demand softens, and leaders should attempt to get ahead of the curve before competitors start pricing in reductions to consumers.
More effective SIOP and network design would also work together to help reduce costs in MRO, plant, machinery, and fleet management as customer demand declines. Leaders should also take a hard look at planned investments in automation and innovation and prioritize projects with a clear ROI.
Fifth, companies should strengthen contingency planning. With some raw materials continuing to drop significantly in cost, executives should anticipate customers demanding price reductions or delaying orders. To mitigate risk, Staub recommends companies analyze not only suppliers, but suppliers’ suppliers.
Having a plan B isn’t enough in the face of geopolitical conflict and global recession, however. What’s required is “a structured approach to consider higher variability” that can manage a shallow or deep downturn.
Finally, there’s environmental, social, and governance (ESG) concerns. CEOs view ESG as a top-10 priority, according to a recent Gartner survey, and poor ESG performance can threaten brands to a certain extent. This will only grow as Gen Zs and younger generations age up.
ESG requirements will also becomes stricter from the regulatory end, but leaders that prioritize sustainability ahead of enforcement will gain a first mover advantage and the opportunity to develop partnerships with a limited pool of ESG innovators.
“The impact of rapid change on the end-to-end supply chain over the last three years is evident,” Staub notes. “Addressing the six key areas highlighted above is a health check to ensuring your operations can triage quickly in an unstable economic environment.”
