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Despite Covid Disruption, 60% of Supply Chain Execs Prioritize This Over Resiliency

“Resiliency” has been a key word describing the hopeful bounce back of retail and business as a whole in the back half of 2020 and going into 2021. But when it comes to the supply chain, resiliency is a necessity, especially for apparel retailers, if they want any chance to adapt to an ever more demanding shopper.

In a February survey, Gartner found that 87 percent of more than 1,300 supply chain professionals plan investments in supply chain resiliency within the next two years. The survey, conducted from September through November 2020, showed that even more supply chain professionals (89 percent) want to invest in agility within the chain during the period.

The research and advisory firm defines resilience as the ability to adapt to structural changes by modifying supply chain strategies, products and technologies, and agility as the ability to sense and respond to unanticipated changes in demand or supply quickly and reliably, without sacrificing cost or quality. But despite the enthusiasm of the executives surveyed, they have a long way to go in proving they are willing establish these characteristics at the expense of cost-efficiency.

“Supply chain executives overwhelmingly recognize the necessity to make their networks more resilient and agile,” said Geraint John, vice president analyst with the Gartner Supply Chain practice. “At the same time, 60 percent admit that their supply chains have not been designed for resilience, but cost-efficiency. The challenge will be to create an operating model for supply chains that combines the best of both worlds and also delivers supreme customer service.”

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Three-quarters of respondents believe that the additional costs caused by the investments in resilience and agility will be covered by the supply chain budget. Gartner recommends that with this assumption in mind, chief supply chain officers (CSCOs) must take the lead in identifying where and how much to invest.

“In practice, the concrete investments will likely be a series of activities ranging from incremental projects in small firms to transformative capital investments by global industry leaders,” said John. “We see that many organizations are investing in diversifying their supply base and redesigning products to mitigate risk. More collaborative relationships with key customers and suppliers is also a priority for almost all respondents.”

While retailers say they are insistent on building out more agile and resilient supply chains, they going to have to take bigger risks and make more technology investments. Only 21 percent of organizations are willing to adopt, or even consider, early-stage technologies, Gartner said in its 2020 Strategic Supply Chain Technology Trends report.

One of the technologies highlighted in that report was “hyperautomation,” which Gartner referred to as a framework to mix and match technologies such as historic legacy platforms with recently deployed tools and planned investments.

In the case of the supply chain, hyperautomation might represent the changeover from using simple robotics automations to help factory workers to fill boxes or bags to instead leveraging sophisticated image processing and computer vision, coupled with decision-making AI, so that if a robot encountered a different size or shape, it would effortlessly adapt with no human intervention needed.

This process could pay dividends for retailers looking to bring more of their supply chain operations closer without worrying about cost or efficiency. As of now, 56 percent of supply chain professionals say automation will be able to provide one major benefit: making onshore manufacturing economically viable.

“Ultimately, the right balance between investments in resilience and agility, and cost-optimization depends on each organization’s individual circumstances, including their financial strength, market position, appetite for risk and external factors such as regulatory requirements or supply chain constraints. If CSCOs choose their investments wisely, they can expect to see positive results as soon as the next disruption,” John said.

Pressure is kicking in to find a way to leverage more technologies to deliver an agile supply chain closer to home. More than half (52 percent) of supply chain professionals surveyed reveal that national interests and a pressure to favor domestic operations will increase the influence on future supply chain decisions, while only 15 percent disagree with the assertion.

This comes amid not only the recent pandemic-driven needs for vaccines and personal protective equipment, but is also a result of ongoing international issues that are out of their control, such as the U.S.-China trade war, Brexit or the rising costs of shipping containers.

Yet even as this pressure kicks in, there’s still a big push and pull that is keeping most supply chains at a distance. Only 30 percent of survey respondents report that they are shifting from a global to a more regionalized supply chain model, while 36 percent say they disagree that there is a shift going on. And another 34 percent are neutral to the matter, indicating that they may not have a firmly established direction that their supply chain is going in.

As all retailers are well aware, this is likely the toughest area to go about changes, since it likely means uprooting an already established model. The high level of integration in global supply chains, the regulatory burden of moving already established supply chains to a different location and the concentration of key suppliers in certain geographies make it difficult to completely regionalize a supply chain network.

At the end of the day, many retailers still are listening to their consumers to determine how the back end of their operations work, making price more of an imperative and likely holding back initiatives related to both supply chain resiliency or agility. As many as 45 percent of supply chain professionals think that their customers favor low pricing over domestic sourcing and production—particularly in industries with ferocious price competition, such as retail and fashion.

Cost differentials and cost efficiency will remain key considerations for these supply chains when evaluating any redesign of their operational networks. Almost half (49 percent) of survey respondents see lean methodologies, just-in-time systems and low-cost country sourcing as relevant to future strategies.