Survival of Companies Depends Entirely on Managing Supply Chain’s 5 V’s
They include: visibility, volatility, velocity, vulnerability, and viability.
During the first six months of 2021, Bloomberg reported more than 70 companies with at least $50 million of liabilities had filed for bankruptcy. That is below the 118 that filed in 2020 during the same time, but it’s still above the 10-year average of 65.
The main reason is poor supply chain management.
Disruptions in logistics and drastic changes in consumer expectations have sparked an unprecedented focus on supply chain management for C-suite executives. We are now seeing the shift from logistics and supply chain primarily being a back-office function to a boardroom priority. It is only the start as supply chains will continue to grow in complexity.
To avoid bankruptcy, the future survival for organizations now depends on effectively managing the 5 V's of supply chain success: visibility, volatility, velocity, vulnerability, and viability.
Visibility into the real-time status of products and components from plan to delivery. With customers demanding real-time status updates and shorter delivery windows, supply chains are under immense pressure to meet consumer expectations. Therefore, shippers need end-to-end visibility enabled by supply chain control towers to predict and act on disruptions.
Collaborative information-sharing made possible by technology is essential to build a competitive advantage. Take Nike, for example, which leveraged its RFID technology to optimize its distribution channel and boost online sales.
In 2020, store closures severely impacted Nike’s ability to sell products from their retail locations. RFID gave Nike the visibility it needed to track products sitting idle in stores that could now sell through its online platform. By selling more products online as opposed to wholesale, Nike was able to achieve higher margins. This strategy helped Nike increase their revenues by 96% over the prior year and 21% compared to the fourth quarter of 2019.
Volatility from consumer demand to supply, to the price of components to capacity. Effectively navigating volatility and unpredictability is a significant concern for any organization. Senior leaders face many variations of VUCA, or volatility, uncertainty, complexity, and ambiguity, in their supply chains. Incidents range from black swan events such as the pandemic shutdowns to small firefights that stem from errors in data entry or miscommunication.
To manage volatility, organizations should already start aligning the supply chain to a strategic vision, expanding sales and operations planning through integrated business planning (IBP), and prioritizing collaboration to execute on initiatives.
Collaborative planning improves forecasting, enables more robust what-if scenarios to model risk, and ensures supply chains remain malleable and adaptable irrespective of the changing environment. Implementing IBP and eliminating siloed communication allow organizations to achieve tangible results ranging from 30% increase in delivery performance, 15% decrease in inventory costs, and 90% accuracy in demand planning even during volatility over the course of the two years.
Velocity to beat competitors and meet customer demand. Consumers want their products faster, and organizations must increase their delivery velocity. The e-commerce age has prompted retailers to determine the appropriate vicinity of operations and move distribution and manufacturing closer to the end customer to help shorten last-mile delivery.
For example, in Europe, warehouse demand has surged, and vacancy rates in Feb 2021 fell to ~5%. Companies find locations closest to the end customer rather than paying the >30% costs from international shipping.
However, velocity is not just about network optimization; it also includes improving internal processes by removing waste and complexity in communication flows between resources. Having fewer steps in an organization’s production line combined with closer operations to the end customer provides the most significant delivery velocity.
Vulnerability with effective risk assessment and mitigation planning. It is not surprising 83% of key decision-makers, including CSCOs and CPOs across 200 multinational companies, stated in a survey that risk management investments had become a top priority for their organization. Establishing an effective risk management program with proactive and continuous risk monitoring is required for managing supply chain vulnerability in today’s market.
Organizations need programs that develop early warning signs, perform root cause analysis, and quantify risk. However, risk management is not just an application. It is also part of internal processes. For example, teams performing drilldowns and calculating the cost to serve a customer to determine areas of vulnerability.
Executives should ask themselves: Is the cost to serve that customer equal to or more than the actual invoice amount? If so, then where can cost drivers improve? In times of instability, such as increases in freight charges, passing the cost to the end-user is inexcusable and will ultimately result in customers taking their money elsewhere.
Viability and sustainable principles that enable long-term growth. Customers, society, employees, and many other groups are pressuring companies to adopt sustainable practices, especially in the supply chain. To become a reliable partner, they must establish impactful sustainability metrics: minimizing carbon emissions, controlling waste, or utilizing more renewable energy.
Research conducted by IBM in 2020 showed that 60% of consumers are willing to change their consumption habits to reduce environmental impact. Unilever’s commitment to sustainability exemplifies how bold and impactful goal setting can pay off greatly. Since announcing the “Sustainable Living Plan,” the company has outperformed many of its competitors, recovered many losses due to waste, and consistently earned a top spot in most sustainable supply chains lists. Companies that prioritize sustainability will see increased revenue from stronger customer demand while avoiding future government interference with regulatory pressures on the horizon.