The post-COVID-19 landscape has reshaped supply chain dynamics, creating a complex web of challenges that can cripple even the most robust networks. Companies have been facing unprecedented shifts in demand, erratic lead times, soaring costs and a constantly fluctuating labor market, threatening their ability to stay competitive.
At L.E.K. Consulting, we believe the difference between thriving and surviving lies in finding the "Goldilocks Zone" — the perfect balance for decision-making, where strategy meets agility and complexity is tamed without relying on generalized assumptions. In this article, we’ll explore the modern supply chain challenges companies must navigate and how our experts can guide you to excel in this new reality.
Modern supply chain challenges
Supply chain network design has always required a delicate balancing act — juggling production levels, inventory management and fluctuating demand while maintaining profitability. However, the post-pandemic world has introduced new complexities to these familiar challenges.
Evolving demand patterns
The COVID-19 pandemic dramatically disrupted demand across industries. Some supply chains became overbuilt and underutilized, while others faced inventory shortages. For example, although many retailers found themselves stuck with oversized networks, consumer electronics companies struggled to keep popular items in stock. In response to these disruptions, companies like Walmart chartered their own ships to bypass congested ports and invested in automation to accelerate order processing in new fulfillment centers.
Unstable lead times
During the pandemic, essential goods such as toilet paper and critical pharmaceuticals faced record-high lead times. Although lead times have since improved, many companies now maintain higher inventory levels or unused production lines as a precaution. For example, taking this approach enabled 3M to rapidly expand respiratory mask production in 2020 as a result of lessons learned from the SARS epidemic in the early 2000s.
Increased focus on resilience
The pandemic underscored the importance of resilience in supply chains. Companies are now investing in cost-effective redundancies, such as backup suppliers, multisite and multiline operations, and insourcing production on a small scale. Today, executives must ensure that robust risk management extends beyond their own supply chains to encompass their suppliers' networks as well.
Rising costs
Inflation and rising labor costs are continuing to exert significant pressure on supply chains. To maintain efficiency, companies are consolidating sites and specializing their workforce. The energy crisis in Europe and the fear of cargo ship attacks in the Red Sea — all driven by geopolitical tensions — have further strained supply chains worldwide.
Labor market volatility
As unemployment fell post-2020, competition for skilled talent made supply chain redesign harder to achieve without disruption. Amazon, for example, raised wages and benefits to combat labor shortages, but still struggles with high turnover, reflecting broader challenges in labor market volatility across industries.
Amid these evolving challenges, supply chain leaders must avoid two common pitfalls: generalization and analysis paralysis. Generalization often leads to decisions based on gut feelings or broad assessments, while analysis paralysis can result from becoming bogged down in data and overly complex models.
The goal: The Goldilocks Zone
The ideal approach lies in the Goldilocks Zone — a balanced approach where decisions are informed by sufficient detail to instill confidence but are not overwhelmed by excessive complexity (see Figure 1). This approach enables quick, effective decision-making, keeping the supply chain agile and responsive to change.
We help companies navigate the complexities of network optimization by guiding them to this ideal balance. Our approach is built on five key principles:
- Understand your data and its limits
Effective decision-making relies on accurate data, but it’s crucial to recognize data limitations. We focus on the level of data that is reliable and relevant, often inviting candid discussions with data owners to ensure the analysis is grounded in trusted data. - Use archetypes wisely
Archetypes, or model templates that represent common patterns within a network, are crucial for consistency. Too many archetypes can lead to confusion, while too few can miss important nuances. By developing a manageable number of archetypes (ideally five to 15), we apply consistent logic across the network without overcomplicating the process. - Focus on the most impactful levers
A common pitfall in network optimization is getting lost in less important details. We prioritize the most critical drivers of improvement, using tools like value driver trees to focus on changes that will have the greatest impact. This approach ensures that efforts are concentrated where they matter most. - Narrow the option set
Considering every possible option can be overwhelming and counterproductive. We narrow down the choices to a few variations that are both impactful and feasible, reducing wasted effort and keeping the analysis focused on what can realistically be implemented. - Validate and implement
We validate key aspects of network design through selective testing, which allows us to catch critical issues early. This ensures that the solutions we create are both practical and ready for implementation. The goal is to move quickly from analysis to action, keeping the supply chain responsive and agile.
To achieve long-term success, supply chain leaders must actively embed these principles into operations, building resilience and agility into their supply chains.
Thriving in uncertainty: The path forward
The ability to quickly adapt and optimize your supply chain is not just a competitive advantage — it’s a necessity. By finding the Goldilocks Zone, you can make informed, strategic decisions that propel your business forward while maintaining the ability to pivot.
Our firm has the team, the in-field expertise and the tools to help you navigate these complexities and transform your supply chain into a robust, cost-efficient, resilient and future-proof asset.
Contact us to discuss how we can help you turn these challenges into opportunities.
L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands mentioned in this document are properties of their respective owners. © 2024 L.E.K. Consulting LLC
Bibliography
"Supply Chain Lessons from the Coronavirus Pandemic." Journal of Accountancy, February 2021.
McCurry, Elizabeth. "Walmart to Charter Ships as Peak Inventory Season Looms." Supply Chain Dive, August 12, 2021.
"Supply Chain Statistics: 28 Key Figures to Know in 2023." Procurement Tactics.
"Shippers Have Already Diverted About $35 Billion in Cargo from the Red Sea Amid Fears of Attacks." MSN, September 2023.
Amazon Faces Recruitment, Retention Challenges as Labor Competition Grows." S&P Global Market Intelligence.
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