Supply chain transformation will never be finished.

Companies must commit to continuous improvement to develop an agile supply chain—one that is resilient to the next disruption. According to the National Association of Manufacturers Outlook Survey (Q4, 2023), most manufacturers continue to de-risk their supply chains. 86% of respondents confirmed their companies have been working to adjust their supply chains to limit potential risks.

Supply chain became newsworthy during the COVID-19 pandemic. During this time, I led global business development for a Fortune 500 distributor. We focused on North American headquartered companies with manufacturing in Asia and Europe. I had a front-row seat to the container shortage, port delays, rising freight rates, and later, the war in Ukraine. At the same time, I had the privilege of working with and supporting global procurement teams for some of the most elite companies in the world.

The most successful procurement teams were responsive and agile; they asked the right questions and pivoted their strategies accordingly.

Sure, everyone wanted to know when their orders would arrive. For most procurement teams, that’s when the questions ended. They addressed supply chain risk with band-aids like increasing inventory levels to disguise future stockouts. But for some elite companies, the questions and curiosity extended beyond delivery dates and lead times. They wanted to understand their entire upstream supply: the origin of their raw materials, the dependencies in their supply chain tiers, and the risks.

Successful companies weren’t just waiting for their orders to arrive and bumping up safety stock levels. Instead, they increased the visibility of their supply chain and actively built resilience to prepare for disruptive risks.

The best companies didn’t wait for large-scale reshoring initiatives. They began making changes right away.

• They shifted to dual sourcing over single supply. For example, a large aerospace company began requiring redundancy in supply for all products. Hence they identified back-up suppliers, established pricing agreements, validated quality, and then split the volume. Due to geo-political concerns, back-up suppliers were established in different countries. This is in sharp contrast to the economies of scale approach that had historically guided procurement decision-making.
• They increased their degree of regionalization and even started “In Region for Region” sourcing initiatives. I observed this most frequently in Europe. Instead of relying on Asia for lower-cost products, they chose regional suppliers. Proximity improved response and delivery time, reduced transportation cost and lead time vulnerabilities, and enhanced supplier relations.

They made strategic decisions where price was not the driver.

• Top-performing companies prioritized supply chain evaluations when they identified supply with significant geopolitical risk. For many, this meant choosing a higher-cost, regional supplier. For some, it meant partnering and investing in the development of suppliers in regions which historically were overlooked, particularly in southeast Asia. For example, a large semiconductor company with a global center of excellence in Taiwan, established supply chains independent of China. In the short term, the company incurred a substantial cost increase (as cost parity to China had not yet been achieved in SE Asia). They also demonstrated patience and commitment to their strategy as new suppliers worked to meet requirements and achieve the needed certifications. In the long term, they’re reaping the benefits of resiliency: gaining share via reliable continuity of operations.

• They delayed product launches into new categories and maintained focus on their core business. While product expansions represent an exciting avenue for growth, resilient companies understood the supply chain implications and became hyper-focused on protecting their core. They prioritized critical products and customers. Once the market stabilized and their core business was secure, they were able to pull the trigger on new product expansions.

They focused on what they could control.

• The container shortage and rising freight rates severely impacted the supply chain. While you can’t make containers appear or guarantee rates in a constrained, volatile market, you can optimize what you load onto each container. Many companies gained efficiency by revamping their shipping and containerization strategies through packaging redesign and loading optimization. With container rates ballooning and unprecedented port delays, it was critical to ensure that each load had the right products with the highest space utilization.
• Some companies even included packaging design and containerization planning in the front end of their new product development initiatives. While packaging is often an afterthought, some companies adopted a “packaging first” strategy. To meet demand and drive down shipping costs, a well-known consumer appliance company launched a product development initiative for a new grill with containerization as a primary innovation goal (i.e., to maximize the number of units that could be loaded onto a container). They re-engineered the entire product to achieve an optimal packout which had a positive impact on the top and bottom line.

For now, the spotlight has shifted, but the fragility of the supply chain should not be forgotten. For decades, supply chain optimization occurred through just-in-time implementations, reducing inventories, streamlining suppliers, and gaining cost efficiencies by leveraging economies of scale. While these practices have significant importance and value, they overlook disruptive risk. Again, the pandemic highlighted the cost of ignoring such risk. By diversifying suppliers and manufacturing locations, and keeping the supply chain at the forefront of innovation, companies can mitigate risks, even in the face of unforeseen challenges.

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About the Author

Ashley joined Strategex after nearly two decades working at Fortune 500 companies including Veritiv, Kimberly-Clark, and General Motors. Ashley is excited to leverage her experience to help our private equity clients feel confident in their acquisition decisions and to help develop value-creation strategies. Ashley holds a BS in Industrial Engineering from Purdue University and an Executive MBA from Kellogg School of Management at Northwestern University.