Connected Business Ecosystems Can Boost Supply Chain Resiliency

In a time of unending disruption, the old model of linear supply chains optimized for cost efficiency must be rethought for resiliency and agility.  

TAKEAWAYS:
● In a networked ecosystem, rivals can end up being partners in their supply chains, a development that was potentially unthinkable years ago.
● The levels of supply chain disruption repeatedly surged to record levels since 2020, highlighting the need for new strategies.
● Effective networked ecosystems are underpinned by reimagined architectures, greater end-to-end visibility, and technologies that enable faster decision-making and agility.  

In the past decade, supply chains went from a back-office concern to front-page news, from enablers of strategies optimized for cost efficiency to potential sources of disruption that demand resiliency. Many organizations are slowly realizing that their supply chains are structured around market dynamics and operating models that are no longer relevant, and the solution requires efforts oriented outward — in networked ecosystems of supply — and not just inward.

To determine the way forward, it helps to reflect on what happened that took us to this point. The COVID-19 pandemic was a rupture with clear before and after points in our lives, yet it is only one part of a broader narrative that’s still unfolding: evolving technology enablers, geopolitical risks, and sector convergence are also complicating a landscape in which hardened borders and conflicts between governments are undermining globalization.

Against this backdrop, yesterday’s supply chain operations are ill-suited for today’s world — and grow more obsolescent in a business landscape that never returns to normal. When you pinpoint the forces affecting your organization, you clarify how best to build your roadmap to the future, and the partners to involve along the way.

Why Back to Normal Never Arrives

The past few years have felt like an endurance test of unprecedented chaos. Through its Global Supply Chain Pressure Index, the Federal Reserve Bank of New York backs up those feelings with hard evidence: since 1997, the beginning of the index, the levels of disruption repeatedly surged to record levels since 2020. The one-two punch of Japan’s Sendai earthquake and tsunami and Thailand’s catastrophic monsoon flooding in 2011 marked the high point of supply chain concerns before the COVID, but reflected just about a third of the standard deviation from the norm than what companies expected in 2021 and 2022.

This chart also illustrates how, until fairly recently, the major substantive supply chain disruptions were almost exclusively natural disasters, events that, while serious, but do not reflect persistent foundational challenges to business as usual. It’s feasible to recover from a natural disaster and return to normal in, say, three months. But a number of foundational challenges have made supply chains leaders feel like they’re always recovering, with normal further away than ever.

Around 2017, many companies experienced new headaches stemming from geopolitics, as the US and China, a key point in supply chains for many big multinationals, became embroiled in trade disputes. Today, the world is still grappling with the fallout of Russia’s war with Ukraine, which scrambled the markets for energy, certain precious metals, agriculture, and more. These events are representative of how the promise of globalization, forged after the collapse of the Soviet Union, has taken a turn into greater nationalism and populism.

More leaders globally have made tighter restrictions on the movement of goods and people across borders a defining principle of how they govern. Many trade blocs and agreements have been rewritten or discarded entirely, such as when then-President Donald Trump took the US out of the Trans-Pacific Partnership. Power blocs oriented around China, or more involving neutral nations like India and Brazil, have formed under “Globalization 2.0,” and as a result, many multinationals are left with supply chains that reflect a prior era of cooperation, exposing them to risk in today’s era of fragmentation.