Supply Chains Must become Less Brittle, Build in Flexibility

The US and indeed the world is in a deep recession that is likely get worse, with projections from White House economist Larry Kudlow that US GDP could fall 30% in Q2 – a drop not seen since the Great Depression in the 1930s.

What to do now? No one is very sure, with the US Federal Reserve printing money to stabilize debt markets and the federal government spending trillions in various stimulus measures.

Supply Chain Digest Says...   However, "The key to success is playing the hand you were dealt like it was the hand that you wanted," Tompkins argues. What do you say? Click here to send us your comments Click here to see reader feedback

Jim Tompkins, now chairman at consulting and systems firm Tompkins International after just recently leaving the CEO role, has his own thoughts – as he has in the past in dark economic times.

In mid-2009, for example, in the midst of the financial crisis and the Great Recession, Tompkins began pushing the concept of "comeback planning," based on his historical analysis that said company profits and business expansion would turn positive by the end of the year, a forecast that largely proved accurate.

Now, Tompkins is out with a new opinion paper he calls Restarting the Economy: Guidance for Public and Private Leaders

Below is a summary of the Tompkins paper:

Tompkins notes the major effects that the coronavirus had earlier in the year on Chinese suppliers, and the fits and starts it takes to get supply chains on back on track after such a disruption.

Then came the spread of the virus to other countries, with subsequent "stay at home" orders, which are radically changing – for now at least, but maybe forever - consumer demand.

The fundamental issue, Tompkins says, is that when the lock downs end, is what will be the supply chain process to synchronize the supply and demand after all this disruption?

But a second key question, after all the change in behaviors and demand from consumers, with ripple effects of course to material and other types of suppliers upstream, is how COVID-19 will impact their lives and habits going forward and how does the reopened economy respond to the "next normal?"

Tompkins notes that even before the virus crisis, for several years there has been significant innovation and disruption in business and the supply chain, mostly driven by digitization of many business processes.

Each company has two choices with the disruption cycle - disrupt the industry (proactive) or be disrupted (reactive), Tompkins says.

Now add to innovation disruptions "crisis disruption," which range from unexpected mergers and acquisitions to factory fires to… coronavirus. At the far end of the crisis disruption curve are so-called "black swan" events – surprise, improbable occurrences with major business or social impacts, such as the swift rise of the virus worldwide in 2020.

Tompkins then introduces the concept of VUCA - Volatility, Uncertainty, Complexity and Ambiguity - first introduced by the US Army War College in 1987 to describe the state of the world following the Cold War. The term can also be applied to the business environment, where the VUCA of today’s increasingly digital world is having a tremendous impact on supply chains and commerce.

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All of the VUCA components are obviously at high levels right now.

What should companies do in response?

"The rise of digitalization and frequency of innovative and crisis disruptions require organizations to rethink their supply chain strategies and focus on building "anti-brittle" solutions," Tompkins says. "Instead of seeking ways to optimize their supply chains, organizations need to "optionize" their supply chains, deploying flexible and agile solutions that are capable of adapting and evolving to provide a series of options to address whatever is happening at any given moment."

He adds that "Anti-brittle supply chains operate as a living system, enabling organizations to quickly and efficiently reconfigure strategies, structures and solutions as needed to achieve success, profitability and growth in times of VUCA."

The coronavirus impact has been and will remain a powerful force on consumer and business behavior – and often not to the good side for many companies.

However, "The key to success is playing the hand you were dealt like it was the hand that you wanted," Tompkins argues.

But Tompkins says that each company’s situation depend on two dimensions: how well it was performing before the virus (strong or weak operational excellence) and the industry sector it is in (ones that have fared well in the crisis and those in trouble, ala airlines, sporting goods).

Given the resulting four quadrants, the strategies are naturally different depending on where a give company places in such a framework – with weak performers in challenged sectors facing a tough slog to say the least and which may need to wind down the business. The paper outlines the key actions needed by each of the four groups.

Tompkins also says we are seeing a combination of traditional "end to end" supply chain processes and those related to ecommerce from a consumer perspective (shop, by, use), in what he calls the new "E2E river."

Tompkins then concludes by arguing that while there are some limited discussions around the understanding the next normal, there is weak leadership on how to:

1. Resynchronize supply and demand
2. Alter product offerings
3. Understand how to deal with consumer health concerns
4. Understand VUCA and how to respond to VUCA
5. Address a global recession
6. Communicate a company vision and path forward
7. Address the E2E Digital Commerce Supply Chain challenges

To reopen the economy, Tompkins says the following needs to happen:

• The government must, in a timely fashion, lift the stay-at-home orders.

• Company leadership must understand the role of supply chain in reopening their company.

• Company leadership must get their organization aligned around a detailed strategy and path forward for reopening their company.

• Company leadership must successfully pursue their strategy and path forward for reopening their company.

"When key companies and industries are open and addressing the next normal, then- and only then - will the economy be reopened," Tompkins says.

What is your reaction to Tompkins' analysis? Let us know your thoughts at the Feedback section below.