Balancing cost, resilience and sustainability across your supply chain

The solution requires a new approach. One that reframes the once-competing priorities of cost, resilience and sustainability into complementary considerations.

Capitalising on these opportunities requires leaders to combine insight, expertise and strategy with powerful tools to build a resilient and responsible supply chain while ensuring any change is viable, valuable and sustainable. And getting the balance right between human insight and technology right is the key to meeting all your targets in unison. 

This imperative also comes at a time when organisations need to transform themselves, with our 26th CEO Survey revealing 22% of chief executives in the UK believe their business model will not survive the decade in its current form. Globally, that figure rises to 40%. As such, business leaders must strike the right balance of talent and technology across both the supply chain and the wider organisation to deliver change people can trust.

Time is of the essence

While there are clear actions that all organisations can take to optimise costs, real success will depend on how quickly and decisively changes are enacted. Progressive businesses have already taken steps to change behaviours, where they invest and optimise critical spending, says Lisa Callinan, Partner at Strategy& UK.

“We saw in previous crises that leading organisations were exploring investment for recovery. If you’re serious about getting ahead, it’s worth noting that some are already looking 12 months down the line, and considering how different things will look then. We’re working with a number of organisations who already have plans in place; those that aspire to lead need to do that too.”

Organisations who delay actions to limit the impact on revenues, costs, investments and capital allocation may see themselves outmanoeuvred by bolder competitors. Our Global CEO Survey revealed that 43% of global CEOs believe supply chain disruption will impact profitability in the next decade. While many organisations are looking to urgently put digital supply chain transformations in place, it can take up to 22 months before investments in advanced supply chain capabilities pay off.

A new approach to supply chain management

A relentless cost-reduction drive over recent decades has spread supply chains across the globe. Now, that efficiency has come at a cost of its own.

While supply chains have always been relatively fragile, the true extent has been exposed in recent months. And some organisations are feeling it more acutely than others. Take manufacturing, for example, where 73% of UK manufacturers state that supply chain fragility is now the number one challenge they face over the next couple of years.

“Maintaining visibility across complex, expansive systems has long proved difficult. Just-in-time supply chains have always had little capacity to absorb shocks and left supply chains brittle,” says Fred Akuffo, Partner at PwC UK. “Whether Brexit, the pandemic, geopolitics, or international sanctions, that fragility has been heightened in the modern day. And these events have started to create different behaviours - in people and businesses.”

Limited sources and capacity have led to increased competition and cost, not just concerning stock but transportation, storage space, and more. In response, many organisations moved to build and acquire as much stock or security of supply as they could. But that has impacted their ability to free up working capital to reinvest in the business.

So, an organisation’s pressing challenge has become finding liquidity and releasing capital, while maintaining a smooth operation across the supply chain. For many, that requires a fundamental behavioural change if they are to overcome these challenges and emerge a stronger, leaner business that is more fit for growth.

Any change begins by revisiting strategy and being clear about the must-haves and big bets to win in the future, for any economic scenario. That should go hand-in-hand with total cost transparency across both people and procured costs, so it’s possible to make clear strategic choices and evaluate trade-offs across the entire value chain. Decisions must not be knee-jerk or solely focused on cost saving.

It’s also imperative that organisations double down on differentiating capabilities against competitors, benchmarking cost structures and clarifying where to invest and how to pay for it. From there, it’s possible to revisit the entire cost structure of the organisations and establish short, mid- and long-term actions to fundamentally adjust for the future.

Reimagining operating models and deploying the right use of technology will not only accelerate change but improve resilience and drive a cultural evolution that ensures any transformation is sustainable.

Successful teams are already digitising supply chains, using advanced technology like cloud, AI, and machine learning to capture the right information and drive processes efficiency. But they’re also combining it with the right people and skills to turn that data into insight that informs actions, allows them to integrate business planning and make more informed outsourcing decisions.  

For some, finding that right balance can be tricky. The proportion of those components will vary depending on the organisation and the challenge. Organisations must not oversteer towards technology at the expense of the incredible value people bring, and they must not fear new technology or the impact it may have on their teams. 

From competing to complementary

While any strategic evolution of the supply chain may prove more expensive in the short-term, it will avoid an operational breakdown in the event of a future disruption, creating greater security, providing long-term savings and avoiding reputational damage. It will also help organisations focus on their strategic goals, such as building resilience, creating certainty or reducing emissions throughout the value chain. 

Unstructured cost reduction isn’t the right strategy for those organisations that want to lead, according to Callinan. “Leading organisations are turning to strategic cost optimisation rather than cost out. It may seem counterintuitive, but optimising how you spend now will bring significant results long-term and drive sustained growth on the other side of these cost pressures. Organisations should ask themselves whether they want to be leaders in the future, or whether they are just going to dig in and try to survive.”

Successfully optimising costs requires the breaking down of silos across the business, she says. “Areas of spend working across teams, so it’s important to have that sight - and discourse - across procurement, planning, logistics, commercial and finance, and more. Real change demands that internal teams collaborate to create a single view that informs the strategy.”

The right strategy will optimise costs in a way that also adds resilience to a brittle supply chain.

“While some still view cost, resilience and sustainability as competing priorities, by reframing the challenge and putting productivity at the centre of your strategy these goals can be achieved together,” says Akuffo.

Organisations will need to give thought to how they align these areas. Much will depend on being able to see not just across the business but getting performance and competitor insights, and a true view across the entire value chain. Only the right level of data and intelligence will allow informed, strategic decisions on critical matters, such as technology implementation and deployment, as well as how to make behavioural change stick or get people to embrace new processes correctly.

And leaders must make any changes with a strong focus on net zero and sustainability requirements. Our recent survey on ESG Empowered Value Chains showed that while 77% of respondents plan to achieve net zero in all value chains by 2050, only a third have implemented measures for emission reduction, with 53% in the early stages of transformation.

Transforming the supply chain with net zero in mind, gives organisations the opportunity to become ‘ESG champions’. The benefits can be huge: top management support, integration of ESG into operational strategy and vision, more realistic short- and long-term targets, and significant stripping out of scope 1, 2 and 3 emissions throughout the organisation and supply chain. To do so requires leaders to rethink the end-to-end value chain, including the re-engineering of supplier networks, the organisation’s footprint, product design, and adjusting business models towards circularity.

The data difference

Data can be the difference maker, particularly when it comes to balancing these three historically competing priorities.

Access to free-flowing data unencumbered by departmental silos allows organisations to make better, faster and more intelligent decisions. Leading organisations already collect and model significant amounts of customer, supplier and supply chain data. They now need to invest in data analytics capabilities - and the right skills within their teams - to convert this data into usable insights that not only inform about customer demands and fluctuations, but ways to reduce emissions, how best to reallocate inventory and even preemptively identify shocks and risks.

Done correctly, this data creates a virtuous cycle in which more data can be fed into models, and converted into even greater insights to inform the organisation’s future strategy and create a competitive advantage.

Opportunities for bold leaders

As organisations continue to grapple with a myriad of pressures, they must look to transform supply chains in a more strategic way that allows them to optimise spending and grow stronger at the same time.

The strategies and approaches that once worked so well for organisations in the past, will not guarantee success in the future. It’s time to take a fundamental look at what they need to do, particularly as leading companies see these disruptive events as chances to grow and to pull away from the pack. That requires supply chains to evolve in a way that creates greater value through increased control, visibility, and efficiency.

But new opportunities exist for those brave enough to take action. Those that can find the right balance between cost, resilience and net zero will not only free up cash for investment but are likely to find a competitive advantage as they improve innovation, reinvent their supply chain and position themselves as future leaders. In turn, that requires organisations to find the right balance of business and industry expertise, relationships and technologies for success.

To discuss anything raised in this article, please get in touch.