How to win the Tour de France?
The Tour de France is by far the most anticipated event of the year for the cycling world, that's obvious. The ultimate goal of this race, for the less athletic among us, is to wear the yellow jersey in Paris. This usually happens by avoiding taking too many risks during the daily races. After all, many riders drop out of the ranking by having a very bad race time on one or more days (chain collision, faulty equipment...) and thus endanger their long-term performance and mortgage their chances of finishing on the podium.
What does this have to do with supply chain networks?
What the crises of the last few decades (the internet bubble, 9/11, the banking crisis, Covid19, ...) teach us is that if we want to judge long-term performance, it is not necessarily the short-term winners who come out on top, but those who can best absorb the big disruptions. Warren Buffett is very often beaten in terms of annual earnings, but he is by far the best performer over a forty year period. However, if we look at the way we manage our supply chains, we are often aiming for short-term success or stage wins in cycling terms. As long as the constraints within which we have to operate can be reliably estimated, this approach often gives the best results. As a result, decision-makers favour optimal solutions for which they rely on pseudo-certainties about the constraints to be taken into account (delays, availability, weather conditions, distances to be covered, etc.) to determine the master plan and the network management method. The emphasis is then placed on the "profit" potential of the scheme for which the preconditions are in line with the expected values. However, the risk and intensity of the fall is often overlooked if the expected certainties suddenly turn out to be less certain.
Since companies are often under pressure to achieve short-term results, the preferred supply chain master plan is often chosen on the basis of economic and optimisation models that rely on too many certainties to calculate the potential under ideal circumstances and take too little account of risk analysis. This leads to often very complex configurations that may work well in the expected circumstances, but fail completely in the event of disruption. In 2020, we have all seen the consequences of long distances in the network, insufficient knowledge of tier 2 suppliers, closed borders, unreliable delivery times, etc. ... This results in negative outcomes that severely undermine long-term performance. The slightly better performance over 9 years is wiped out by the tenth year.
Most companies still often forget this. Managers are judged too much on their performance over relatively short periods, compared to their direct competitors. It is overlooked that to achieve these short-term victories, complex solutions based on fragile assumptions must be put in place. The poor performance of the crisis year is often explicitly attributed only to the crisis element itself and not to system vulnerability, as the crisis was "unpredictable after all". As a result, risk-averse solutions are not fully appreciated.
What can we learn from crises?
What we want to say here is that crises force us to recognise that the world may be facing major disruptions that we have often not taken into account in our decision making. Does this mean that we have to do a full risk analysis for every decision, no that is not the idea. However, we strongly recommend that the supply chain master plan is regularly subjected to a thorough long-term risk analysis. We see this as one of the important responsibilities and tasks of a Supply Chain Director, a CEO and certainly also the Board of Directors within their organisation. This analysis should provide advance knowledge of the consequences of possible disasters and should identify their probability of occurrence and their impact on the business. In a strategic assessment, the focus should be on situations where the impact could jeopardise the continuity of the business. It is then up to managers to assess whether they are prepared to take on this risk on the basis of probability. The result of this analysis should provide a framework within which medium and short-term decisions can be made by operational managers. This way of thinking is often forgotten in our operational world, but if we ever want to arrive in yellow again in Paris, it is perhaps the best guarantee of success.
In practice: companies with a long-term vision are already investing.
The fact that some supply chain managers are already aware of this is illustrated by some of the recent projects that Möbius has carried out with our clients, which were initiated before the Covid19 period. For example, we are thinking about an integrated model for a large retailer in which the impact of internal and external factors (delivery times, customers, delivery times, demand variability, ...) on the overall performance of the supply chain is monitored, we are working on the development of a long-term collective collection concept (cost evolution, shift from cost to revenue streams, certainty vs. risk, ...) and we are designing an assumption-based strategic investment model for a chemical group.
If the recent crisis has also caused you unexpected problems and if you have the ambition to wear the yellow jersey in Paris one day, do not hesitate to contact us to draw up a plan for this!
