•
Sept. 30, 2024
Why Supply Chains Should Be a Top Priority for Every CEO in Today’s Disruptive World
•
Sept. 30, 2024
In the ever-changing world of business, there is perhaps no phrase more misleading than “the new normal.” It implies that we’ve found a place of stability, where companies can operate smoothly, without fear of the ground shifting beneath them. This perception is especially dangerous when applied to supply chains. While the most dramatic disruptions caused by the COVID-19 pandemic may have faded, the challenges facing global supply chains are far from over.
Following the pandemic, supply chain pressures began to ease, and metrics like the New York Fed’s index of supply chain pressure returned to pre-pandemic levels. Many business leaders took this as a sign of recovery. In fact, a 2023 survey by AlixPartners revealed that over half of North American executives believed supply chain issues would diminish in the near future. But this sense of calm is deceptive. Underneath the surface, supply chain risks have become more complex, deeply rooted, and systemic.
For CEOs, these risks are no longer simply an operational concern—they are a strategic priority. Here’s why supply chains need to be back at the top of the executive agenda, and how leaders can prepare for the new wave of supply chain challenges.
While it may feel like supply chains are stabilizing, three key trends have fundamentally altered the landscape, making it more volatile than ever before. These risks aren’t temporary shocks but long-term structural changes that threaten every aspect of business operations, from production to sales and profit margins.
1. Geopolitical Instability
The world is entering a period of constant conflict and tension. From the war in Ukraine to heightened U.S.-China rivalry, global flashpoints are increasingly located near critical shipping routes like the Suez Canal, the Taiwan Strait, and the Strait of Hormuz. These geopolitical tensions can quickly turn into logistical nightmares, causing massive delays, increased costs, and even complete supply chain collapses. The absence of a cohesive global strategy to manage these conflicts only heightens the risk. For companies relying on these routes, instability is the new normal.
2. Deglobalization and Trade Barriers
Global trade is no longer as open and predictable as it once was. According to the World Bank, 2023 saw the introduction of nearly 3,000 new trade restrictions—a staggering increase from just a few years ago. Trade agreements have declined, and tariffs are rising, especially in strategic industries like energy and technology. This shift has forced companies to rethink their global supply chains, leading to trends like nearshoring (moving operations closer to home) and “friendshoring” (favoring trade with geopolitical allies). These changes come with significant costs and demand a rethinking of supply chain design, production processes, and market strategies. It’s not just an operational issue; it’s a boardroom concern.
3. Sustainability and Corporate Responsibility
Sustainability is no longer a choice—it’s a mandate. Investors, regulators, employees, and customers are pushing businesses to cut the environmental and social costs of their supply chains. Whether it’s labor abuses in a supplier’s factory or the carbon footprint of a shipping process, sustainability-related supply chain issues can destroy corporate reputations and disrupt operations. Sustainability must be integrated into the entire supply chain strategy, making it a top-level priority for leadership, not just a concern for procurement teams.
The risks posed by geopolitical instability, deglobalization, and sustainability mean that even a well-functioning supply chain is more vulnerable than it appears. CEOs and boards can no longer afford to view supply chains as a tactical issue—they must adopt a leadership role in creating resilient, flexible supply chains that can withstand the shocks of a disruptive world.
Here are five key strategies for CEOs to elevate supply chain management to a strategic priority:
1. Accept That the Old Supply Chain Model Is Dead
The pre-COVID, just-in-time supply chain model is a relic of the past. The pandemic didn’t break this model; it exposed its weaknesses. Companies can no longer rely solely on buffer inventory or longer lead times to manage disruption. Instead, leaders must empower their supply chain teams to think creatively and strategically, designing systems that are agile and able to respond to unpredictable challenges.
2. Build Financial Flexibility to Absorb Shocks
Financial flexibility is a powerful defense against supply chain disruption. CEOs should strengthen their companies’ balance sheets, examine lines of credit, and invest in risk management systems, including cybersecurity. Additionally, initiatives to reduce working capital and improve margins through efficiency can provide a cushion against supply chain volatility. One example is a vitamin manufacturer that achieved a 10% EBITDA boost by better aligning its manufacturing and distribution operations.
3. Foster Operational Flexibility and Redundancy
Operational flexibility can be the difference between surviving and thriving during disruption. CEOs should push for automation and smart factory solutions that make it easy to shift production between plants or products. Simplifying product portfolios and creating modular designs can further enhance flexibility, allowing businesses to adapt quickly when supply chain issues arise. Backup suppliers for critical components are essential, as is investment in supplier quality improvements.
4. Cultivate a Flexible Organizational Culture
A flexible supply chain requires a flexible organization. CEOs must cultivate a culture that encourages agility and cross-functional collaboration. Cross-training employees, promoting a learning organization, and ensuring that HR strategies align with supply chain priorities are critical. Organizational flexibility goes beyond project management—it’s about creating an environment where teams can pivot quickly in response to changes in supply or demand.
5. Leverage Transformational Technologies
Technology offers CEOs and boards unprecedented visibility into supply chain operations. Advanced data analytics and AI-powered tools can track real-time supply chain risks and provide insights into potential disruptions. Emerging technologies like generative AI can even predict supply chain risks, allowing businesses to take proactive steps to mitigate them. By harnessing these technologies, CEOs can not only optimize their supply chains but also transform them, creating a competitive advantage in a volatile world.
In this era of constant disruption, CEOs and boards cannot afford to take a hands-off approach to supply chains. Gone are the days of relying on dashboards and occasional plant visits. Today’s supply chain challenges require deep engagement from top leadership.
By embracing financial, operational, and organizational flexibility—and by leveraging the latest technologies—CEOs can build supply chains that are not just resilient but transformative. The companies that succeed in this era of disruption will be those that rethink their supply chains from the ground up, seeing them not as a cost center but as a strategic advantage.
As the landscape continues to shift, the role of the CEO is clear: ensure that supply chains are not just optimized but future-proofed, ready to face whatever challenges come next.
