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Strategic resilience: Adapting to changing climates in supply chain

Strategic resilience: Adapting to changing climates in supply chain
Strategic resilience: Adapting to changing climates in supply chain

We’ve seen quite a few supply chain disruption problems following Covid-19. A radical production shift in technology reinventing manufacturing through artificial intelligence. But are technology and AI enough to mitigate and curb the impact of geopolitical tensions and natural disasters on the supply chain? 

Speaking at one of the sessions at the World Economic Forum in Davos, Kathy Wenge, the executive vice president for Johnson & Johnson, shares her views on the current hurdles supply chains are facing. 

Kathy Wenge Credit: World Economic Forum

Alongside Wenge, Tobias Meyer DHL’s CEO weighed in on what businesses should focus on while facing multiple challenges impacting supply chain output. 

Creating a resilient business strategy

Weng believes any business strategy has to be driven by what your customers want. Being reliable, proactive, and resilient is more crucial than ever. 

Many thought they’d seen the worst disruptions during the COVID-19 pandemic, but as Meyer points out, it’s not a single storm that can wreak havoc in the supply chain; it’s also the multiple small ones.  

Meyer worries that businesses are not fully prepared and bulletproof for more supply chain turbulence. 

“They’ve also recognized that supply chains are subject to disruptions. The global transport market has gone through a very specific cycle during COVID, which led to higher transportation costs for some time. So they are thinking, ‘What do I need in terms of the lead time for the product?’”

Meyer says the cost for certain components and the shifts are happening gradually. “So it’s not that the entire supply chain is moving.”

Tobias Meyer Credit: World Economic Forum

Red Sea problems

Meyer warns companies to be prepared for multiple influences in the supply chain, geopolitical tensions, or natural disasters. 

READ ALSO: Trade turbulence: Costs surge as shipping giants avoid Red Sea

He says the sources of disruptions are more likely to come from about three of these events, all accumulating and disrupting the supply chain simultaneously.

“80% of supply chain disruptions are manufacturing issues, not that much of a transportation issue. Consumers were very insecure at the beginning of COVID. Not being able to spend on services and suddenly releasing a huge demand swell,” says Meyer.

These days, when there are three domino incidents or one massive incident, it turns into exuberant spikes, disrupting the supply chain. “There is a bit to worry about because we have another issue, the Panama Canal [which is] also an importing shipping route. It leads then in this system of transport to certain bottlenecks,” says Meyer.

DHL also sees the genuine concern as lengthening the shipping route, not going through the Red Sea. The longer journey increases the route by 40%, leading to a container shortage.

“For instance, Asia [experienced container shortage] for a couple of weeks because that backflow is currently not happening at the pace people were planning for,” explains Meyer.

DHL believes the storm is not over. “It’s not sufficient to basically say, ok, we have a moderate event of that size that we need to plan for the sources of disruption. We all feel that geopolitical, natural, particularly climate-driven, and other societal issues, we have more sources of disruptions,” warns Meyer. 

Reconfiguring manufacturing 

The next step after identifying the potential risk to your business during these changing climates is to reconfigure strategy. Wenge says it all starts with customers when you want to reconfigure manufacturing. 

Strategic reconfiguration never takes as fast as you would like; it takes years. The only businesses that survive are the obese, who can adapt quickly when a disaster hits, like a hurricane, typhoon, or the Red Sea crisis.

Wenge says developing a reconfiguration plan is much more complex today than ten years ago. “It’s easy, especially in a company that’s been around 138 years, to think that we’ve got all that infrastructure and can handle anything. Some of the toughest things you do is rethink your supply chain design as it relates to the next five years.”

She says when a business is more prepared for any natural disaster or disruptions, it allows for more choices when you have tactics. Reconfiguration needs more options when facing a Red Sea crisis, hurricane, or typhoon.

Creating that risk response before it happens is essential to allow a business to activate it when needed and not go into panic mode. 

Wenge says: “It’s the ability to build on what we call proactive resilience. So, an important part of how we look at things now is the total risk portfolio. We look at that supply chain design not only through the lens of operational efficiency of cost of delivery but also the risks that we’re facing as a supply chain. How do we prioritize those? And how do we either eliminate the risk or mitigate those?”

The way forward

Meyer is concerned about the direction of regulations to monitor low-carbon initiatives. “In Europe, what we’re currently seeing, particularly on the ESG ( Environmental, Social, and Governance) topic, is a disaster. It’s not advancing the cause. It’s distracting people from the course.”

He says it’s creating bureaucracy and distracting resources to move the needle. “Particularly on the journey, we all got that we need to become a low carbon, ultimately low carbon economy. I think that’s a bit of a concern that we have to focus the interventions on clear incentives, like tax carbon.”

Wenge is a huge believer of public-private partnerships, including academia. She says it makes everything clearer and simpler if done well because everyone understands each other’s goals.

Exchanging business lessons are vital for business and government. One area where she would improve is the standards and harmonization.

“How are we building a clear path forward, standards in particular, to help us transcend geopolitics at times? It helps give certainty.”

About the author

Mia is a multi-award-winning journalist. She has more than 14 years of experience in mainstream media. She's covered many historic moments that happened in Africa and internationally. She has a strong focus on human interest stories, to bring her readers and viewers closer to the topics at hand.

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