Preparing the Supply Chain for the Next Disruption

Pant Kartik
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Mar 25 · 8 min read

By Kartik Pant, Pepe Rodriguez, Olivier Bouffault, and Duane Weeks

COVID-19 has put supply chains for all industries under enormous stress. From the sourcing
of raw materials to the distribution of finished products, supply chains are at the frontline of
this crisis. But this is not likely to be the last pandemic or global crisis. How supply chains are
currently coping — or not — provides some valuable lessons for facing similarly widespread
disruptions in the future.
Many firms have taken steps to digitize their supply chains. But many haven’t focused on
global supply chain visibility and planning. Faced with the current calamity, companies are
frantically diving into supply chain data, creating one-off models to assess risk. As a result,
there is very little real understanding of what may happen within a matter of days — which
supplier may shut down next, where production may need to stop, or where the next spike
in demand will occur.
No wonder, then, that we are where we are today, with supplier delivery and production
delays galore, empty shelves of essentials, and pandemonium at retail stores. But it doesn’t
have to be this way. With a comprehensive supply chain AI strategy in hand, companies can
help avoid similar issues the next time around. Here are some strategies to that end.

Find the Right AI Solutions

First, companies need to take a good look at the digital technologies that they’re currently
using to manage their supply chains. Off-the-shelf AI solutions that help with visibility and
planning have been around for a while. There are many offerings for specific use cases such
as demand management, supply planning, or control tower visibility. But because each
offering has its limitations, none is able to provide a comprehensive solution that supports
both planning and visibility in both good times and bad.
On one hand, commercial control tower offerings are typically able to provide visibility
across the supply chain. But because they don’t provide enough insights and capabilities for
day-to-day decision support, they are not the optimal investment in the absence of black
swan events. Additionally, these control tower offerings often lack the simulation capability
that will allow managers to shift from monitoring what is happening today to predicting
what will happen tomorrow.
On the other hand, many supply chain planning tools are great at answering demand-
forecasting and inventory-planning questions, but they are not flexible enough to solve for
internal and external uncertainty. Their predictive capability is limited to time-series
forecasting algorithms, which are quite useful in modeling history to predict variability
under business-as-usual cycles. But these same algorithms are insufficient during global
disruption because they do not allow for the introduction of internal and external
environment variables that are essential for making predictions in crisis situations.
We have supported clients across industries — including pharmaceutical, steel, and
consumer goods — in building the initial elements of such a solution. These bespoke
elements are essentially visibility and optimization layers that sit on top of standard
enterprise resource planning systems to provide transparency and insights for day-to-day
supply chain management. But they can be further enhanced to deliver sustained value and
better support in times of crisis.

Create Accountability
Getting the right technologies in place is only the first step — the organization piece must
also be addressed. All too often, functions such as procurement, manufacturing, logistics,
and quality assurance operate in silos, frequently without a cohesive plan to face adversity.
While technically the COO’s office provides oversight, there is no clear owner of exchange to
exchange (E2E) supply chain visibility and risk resilience. And the potential of advanced
analytics to predict and prevent supply chain failure lies largely untapped.
Companies should set up a global team consisting of supply chain strategists, execution
drivers, and technologists (including data scientists and data and software engineers).
Reporting to the COO, the team should have three primary responsibilities:
· Augment business-as-usual activities across the supply chain. The team should focus on
incorporating advanced mixed-modeling techniques that allow nontemporal variables to be
introduced. These techniques will help improve the prediction and management of demand
and supply during crises.
· Create analytics models. In addition, the team should leverage data and insights from these
predictions to develop models that can simulate the sequencing of impact during
unforeseen global crisis scenarios.
· Devise guidelines. The team should also put together playbooks that can provide guidance
on how to manage the changes to business operations that will be needed in the face of
such scenarios.

Invest in a Control Room

Real time (or at least near real time) E2E monitoring of the supply chain is imperative. Now
more than ever, companies must set up a control room with live tracking of global suppliers’
health, inventories, cost of goods, production plans, shipments, demand, and external risk
hot spots. As the workspace of the global control center team, this room would function as
a hub for supply chain optimization during normal operations and as a supply chain
command-and-control center in times of crisis.
This capability is analogous to the control room where BCG GAMMA teams have built and
deployed AI solutions to optimize tail assignment and crew scheduling for an airline client.
These solutions are particularly designed to manage unexpected disruptions, such as delays.
A supply chain control room will require investments in a variety of solutions: track-and-
trace technology, including radio frequency identification tags on containers; Internet of
Things relays for manufacturing lines; and real-time data processing. It will also be necessary
to set up lines of communication and data transmission with suppliers and distributors
worldwide. But companies should avoid investing in everything at once. They should first
figure out which technologies they already have, what’s missing, the value that the new
solutions would provide, and which vendors to procure them from. That will go a long way
toward ensuring that these potentially large investments are sound ones.
For example, an industrial and construction equipment company provided its global supply
chain control room with visibility into suppliers’ production plans, sales and operations
plans, capacity commitments, and inbound flows, as well as into suppliers’ financial,
geopolitical, and operations risks. During the 2008 financial meltdown, this visibility proved
critical for managing the supply chain and developing contingency plans to mitigate the
impact of the crisis. The company did more than survive — it improved its supply chain
response time, reduced inventory costs, and increased its market share. This visibility also
enabled the company to weather the disruptions caused by the Midwest floods of 2010 and
the Japanese tsunami of 2011, when hundreds of suppliers and numerous transportation
hubs were out of commission.
Given the critical importance of timely decision making, AI solutions need to cover the E2E
supply chain as well as be more granular and near real time than in the past. The challenges
posed by today’s interconnected global supply chains call for nothing less.

Use a Digital Twin to Predict and Cope with Disruptions

It’s unreasonable to expect AI to predict when the next global crisis itself will occur. But it
can help create a digital twin of the supply chain, a simulation of all the complex systems in
the actual supply chain. The digital twin can be used to model what would happen if
different disruption scenarios unfold. A well-designed model can help predict demand
spikes and supply shocks and recommend what steps are needed to ensure preparedness
and resiliency.
In times of crisis, the digital twin can be used to compare the long-term impact of different
action plans, making it easier for companies to make good decisions. With the help of
advanced forecasting, firms may even be able to detect early signals for what the shape of
demand will look like when the crisis stabilizes. Incorporating production planning will make
it possible to optimize schedules by ensuring continued supply to minimize delays and
maximize financial efficiency. Recommendations coming out of such models may include
inventory diversions, customer allocation strategies, and changes in suppliers. Such actions
will allow an E2E supply chain to adjust faster as things start getting back to normal.
To leverage the digital twin’s full potential, the control center team will need to be on the
lookout to capture internal as well as external data, including how COVID-19 has spread
across different parts of the world. It’s also a good idea to extend benefits of such AI-based
modeling to suppliers and distributors in the supply chain. Setting up a symbiotic
relationship will allow the entire network to benefit from these efforts.

Create a Culture of Disruption Preparedness

Ultimately, for any of this to work, companies will need to establish a culture of disruption
preparedness. That means acknowledging the critical role that the control center plays —
not only in developing crisis management playbooks and handoffs for all of operations but
also in managing change across the supply chain. To shape management policies that are
robust, the control center should partner closely with safety and quality functions.
Empowering the control center to optimize daily operations will ensure that when a crisis
arises, the organization will know how to work with the control team for best results.

***
The COVID-19 pandemic is not likely to be the last crisis that supply chains will face. But if
companies take the opportunity to leverage its lessons, they will have a chance to reduce
the damage of the crises that are still to come.

About the Authors

Kartik Pant is a lead data scientist, BCG GAMMA, in the Washington, DC, office of Boston
Consulting Group. You may contact him by email at pant.kartik@bcg.com.
Pepe Rodriguez is a managing director and partner in the firm’s New Jersey office. He leads
our global work in the digital supply chain. You may contact him by email at
rodriguez.jose@bcg.com.
Olivier Bouffault is a managing director and partner in BCG’s Paris office. You may contact
him by email at bouffault.olivier@bcg.com.
Duane Weeks is a senior advisor in the firm’s Chicago office. You may contact him by email
at weeks.duane@advisor.bcg.com.
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