How Can Companies Deal with Supply-Chain Uncertainty?

A big piece of building modern supply-chain resiliency is financial planning, which includes understanding risk-adjusted costs. Simply planning to have multiple options for suppliers and vendors is not enough. Build out your business operations to account for potential expenses that are adjusted for the presence of outside factors and disruptions. It’s important to understand the potential cost to your company of an emerging concern, and to simulate the impact to your P&L of factors such as losing sales and revenue, having to expedite freight, or incurring financial penalties.

The biggest mistake that I see companies make when it comes to logistics is excessively focusing on costs that are directly measurable, which leads them to suboptimal outcomes and affects their ability to pivot. Once you begin to do the math with risk management in mind, you may find that a vendor or supplier that seems more expensive up front may be a more favorable choice on the back end.

Scenario planning is also critical. Have a digital twin of your supply chain to stress-test under different scenarios. You can use the model to determine what will happen if new tariffs suddenly arise or a geopolitical event closes off a region, for instance. Doing so helps you understand where your biggest risks are so you can build redundancies into your supply chain to proactively address those challenges.

Many technology tools are now available to provide real-time, data-driven insights. Artificial-intelligence coding lets anyone—even people without technical experience—develop their own custom tools. Small and midsize companies especially benefit from these new capabilities, and if they improve their ability to mix and match generative-AI and Internet of Things tool kits with deep supply-chain analysis, they’ll be positioned to more effectively manage and build resilient supply chains.

Pushkar Deshpande, MBA ’13, is senior vice president of product for Turvo, which provides a collaboration application designed to connect logistics firms, freight brokers, and shippers. He is experienced in building products to help solve supply-chain and logistics problems globally at scale.

Staying ahead of the market requires us to make an attitude shift. The idea of designing supply-chain resilience for one-off circumstances no longer applies. Now that we live in a constant state of change, you need to build logistics capabilities like a muscle, as a form of long-term resilience that you’re flexing all the time to adapt to a continuous flow of circumstances. Agility and flexibility provide the connective tissue that allows an organization to do this.

I advise companies not to make the mistake of focusing purely on external disruptions. Internal disruptions—staff misalignment, operating-model drawbacks, too many siloed functions or legacy processes, for example—sometimes have even more impact on your company’s ability to succeed. As you weigh future investments, it’s important to make sure that you’re fixing and fine-tuning internal capabilities.

Embracing AI and other new technologies will be fundamental to this evolution. But just as important will be maintaining the ability to govern the information that’s coming in and out of your organization. Rather than focusing on the next big thing, you’re better off looking at what you’ve already done with your supply chain and making sure that you’re doing it correctly. So much of your ability to operate under future dynamics comes from having the right talent in the right places and effectively utilizing the change-management capabilities of tools you’ve already invested in. Make sure that you’re getting the most out of your current capabilities. Train your people to shift from firefighting mode to proactively knowing what’s going on. Once you have the basic building blocks in place, you’ll have a sound platform that you can build on and adapt in the face of any changes that arise.

Keep in mind that AI, automation, and high-tech tools are never going to replace the need for frontline engineering and large-problem-solving talent. In other words, as good as the technology is, it’s just not scalable to replace every single human in the supply-chain network. Invest in nurturing and hiring more end-to-end thinkers who can creatively use multiple tools and technology partners in clever ways. Whatever the future brings, we still need big thinkers: You really can’t adapt if you don’t make sure you’ve got the right talent and hiring models in place.

Melissa Hadhazy, MBA ’08, is executive director of strategic initiatives at Ingram Micro. At the time of the interview, she was senior vice president of manufacturing at X/Celerant, a consulting firm. Hadhazy has extensive experience in corporate strategy, manufacturing, and supply-chain operations across industries including chemicals, construction, and energy.

Supply chains are coming under growing scrutiny from governments, which are using AI solutions to modernize enforcement and border clearance. They’re finding better ways of identifying shipments that are breaching regulations or companies that are trying to evade sanctions. Countries are imposing component-based tariffs as well.

Promote thought leadership in your business and engage with government leaders at every turn. It’s only becoming more important to help politicians understand the impact of such decisions, especially those that may prompt long-term trade impacts or more immediate concerns.

The biggest challenge for many firms currently is that their supply chains lack the digital maturity to offset these concerns. It’s imperative for companies to embrace digital transformation and upgrade to smart tools that can help them better track the provenance of goods, parts, and components. Solutions also need to supply up-to-the-minute data so that firms can make decisions in response to changing regulations and tariffs in real time. That’s only possible if they have the power of fact-based and agile decision-making.

Likewise, it’s important for teams in every company to have transparency in goods tracking, especially in terms of value transparency. In other words, understand where you are actually creating value and be able to explain that value to any given national government. In which part of the country are you creating value? Which region of the world? How are you shipping items from Point A to Point B? From a shipping standpoint, you need to be able to visualize where your trade flow is going using real-time maps. This value factor is key to determining the expense and tax liability of these goods.

Supply-chain operators must ensure that their teams have the right tools and training. Cross-functional teams must be consistent and transparent in their dealings with one another. This includes having clear guardrails, because in today’s complex business environment with compounding geopolitical risks, decision-making has to be quick. The cost of inaction is much greater than the cost of mistakes.

Sundeep Khera, MBA ’14 (AXP-13), is an internationally recognized expert on global shipping, logistics operations, and marine insurance. His career spans more than 20 years in the marine industry and 12 years in the insurance industry. A certified master mariner, Khera is the global chief underwriting officer of marine hull and head of marine underwriting for the UK/Lloyd’s market at AXA XL.

Supply chains are really slow movers. As they evolve, a great deal of new infrastructure needs to be put into place and knowledge transfer needs to happen. It’s not like you can suddenly switch strategies and retrain a skilled workforce overnight.

And supply chains have only been growing in size and scope, with current sources of uncertainty presenting risks along the entirety of the networks. Actively work to shrink down your supply chain to bring your suppliers as close to you as possible—in the same country or even state where you’re operating. That means investing in more onshoring and nearshoring.

Building supply-chain resiliency isn’t simply about finding the lowest-cost sources of production and transportation. It’s about anticipating potential risks, determining how to best address them, and understanding where you should accept increased costs of production or transport as an investment in offsetting these challenges. Scrutinize all the nodes in your network and consider your risk exposure. Knowing how a disruption could impact any one of these critical points, or points further down the line in your network, is vital. These are the pressure points that you should be ready to respond quickly to.

It’s critical to increase your visibility into supply-chain operations. Understanding how transportation and logistics work doesn’t suffice; you also need to cultivate greater insight into internal processes, corporate policies, and your network of vendors. Note that you’ve got to do more than surface-level evaluation. For example, in 2011, Toyota thought it had great diversification in terms of its partners. Then the Tohoku earthquake and tsunami disrupted several suppliers in the industry, and the company discovered that many of its partners were using the same supplier for their parts.

You can’t manage what you can’t see. If you can’t predict with certainty what the future will bring, then the more you can budget and build for flexibility in your operations, the better off you’ll be. And the more you can build in flexibility, adaptability, and the capacity to quickly pivot, the more resilient your supply-chain network will be.

Levi DeValve is associate professor of operations management. His research uses a variety of optimization techniques to search complex operational contexts for good policies that can reduce costs and increase the efficiency of supply chains.