Adopting a faster reactionary supply chain model not only improves market responsiveness but also aids in effectively managing crisis situations and grey swan events
In a recent discussion hosted by ET Edge Insights, Kiran Kothekar, the Founder and Director of Vector Consulting Group, delves into the complexities of effectively managing supply chains in a world increasingly disrupted by unforeseeable events known as black swan and grey swan occurrences. Examples of such would be the pandemic and the ongoing conflict in Ukraine. While the COVID-19 pandemic had a worldwide impact, drastically reducing the capacity to manage supply chains globally by affecting workforce availability and distribution logistics, Kothekar also compared this to the more localised impact of events like the conflict in Ukraine, which disrupts a smaller portion of the world and its supply chains.
Preparing for such black swan events is nearly impossible due to their unpredictability and scale, he warned. Attempting to prepare for these events by building excessive inventories could lead to inefficiency and potentially, the demise of the supply chain. There need to be practical strategies to minimise the impact of these events rather than striving for complete preparedness.
There are two key approaches to mitigating risks in a supply chain, he told ET Edge Insights. The first approach involves creating inventory buffers to handle disruptions, but it is expensive and not viable for perishable or time-sensitive items like food and medicines. Certain materials such as minerals, metals, and auto parts are suitable for this approach. The second approach focuses on the ability to react swiftly to disruptions. This involves designing the supply chain to allow for quick responses, even if it means higher initial costs.
The “pull model” in supply chain management formed a portion of this educative session and he emphasised the importance of reducing lead times to enhance reaction speed to market dynamics and demand fluctuations. The pull model is described as a system where one reacts swiftly to sales and market needs. Kothekar was firm to criticise the current focus on cost per unit in supply chain strategies and highlighted the need for a shift in mindset towards prioritising adaptability.
Traditional supply chains are not designed to handle black swan events but is about building resilience to mitigate their impact. There is a paradigm shift happening in supply chain management by focusing on reducing lead times rather than cost per unit. This decreases inventory and enhances market responsiveness. Total supply chain cost should be considered, even if it means increasing supply chain costs to achieve a faster reaction time and gain a competitive edge. In conclusion, adopting a faster reactionary supply chain model not only improves market responsiveness but also aids in effectively managing crisis situations and grey swan events.
