The Hidden Cost of Neglecting Supply Chain Design and Planning

Mid-sized organizations often find themselves engrossed in day-to-day operations and immediate challenges, inadvertently relegating supply chain design and planning to the background. Yet, the truth remains: the efficiency and effectiveness of a company's supply chain can significantly impact its overall business plans, growth trajectory, and bottom line. Let us understand why the supply chain function is generally an ‘after-thought’ instead of ‘part of the plan’, what implications does this carry, and how to not fall into this trap.

Why Supply Chain Function Gets Neglected?

The Misconception of Supply Chain as a Back-office Function

Mid-sized companies tend to prioritize ‘core’ activities such as product development, marketing, and sales , in their pursuit of growth and profitability. Consequently, supply chain operations often become viewed merely as a supporting function, rather than a strategic driver of competitive advantage. This misconception leads to supply chain design and planning being relegated to an afterthought, with resources and attention diverted elsewhere.

If supply chain is still not a ‘core’ function for your organization, then you must be living in a cocoon. In recent times, there has been major impact on businesses owing to supply chain disruptions (COVID, Wars, Suez canal, Semiconductor crisis, Red Sea, China import regulation changes etc. ).

Supply Chain is Common Sensical

While a large part of supply chain is numbers and common sense based problem solving, there is plenty of art and science under the hood which is best tackled by experienced supply chain professionals. Mid sized organizations tend to solve day to day operational problems and feel good about the associated victories. However, more often than not, the larger picture gets missed.

Immediate Cost Reduction vs. Long-term Efficiency

In an attempt to cut costs and optimize resources, mid-sized organizations may focus solely on short-term gains, overlooking the long-term benefits of strategic supply chain management. Quick-fix solutions and reactive measures might provide temporary relief, but without a well-designed and efficiently operated supply chain, these organizations risk facing chronic inefficiencies, increased operational costs, and compromised customer satisfaction in the long run.

Impact on Business Plans and Growth Strategies

Market Responsiveness: A poorly designed supply chain hampers an organization's ability to respond swiftly to market changes, customer demands, and industry trends. This lack of agility can result in missed opportunities and decreased competitiveness.

Customer Experience: Customers continue to raise their expectations for timely delivery, product availability, and order accuracy, even in B2B environment – especially having experienced e-commerce and hyperlocal supply chains on a regular basis. Failure to meet these expectations due to supply chain inefficiencies can lead to customer dissatisfaction, erosion of brand reputation, and ultimately, loss of market share.

Financial Performance: Supply chain inefficiencies translate directly into higher operating costs, inventory holding expenses, and transportation expenditures. These financial burdens constrain profitability, limit investment capabilities, and hinder overall business growth.

Risk Management: Neglecting supply chain design and planning leaves organizations vulnerable to various risks, including disruptions in the flow of goods, supplier failures, geopolitical uncertainties, and regulatory compliance issues. Proactive risk mitigation strategies are essential to safeguarding business continuity and resilience.

How to avoid this trap of neglecting supply chain function?

Acknowledging

The first step towards solving any problem is acknowledging that it exists.

Unless the management appreciate the importance of this function, expecting appreciation from the team members can only be a hope. And like we all know ‘Hope is not a strategy’.

Right team

It is important to onboard the right team for designing an effective supply chain machine. If the organization cannot attract the required talent, they could seek help from consulting/advisory firms that specialize in this area.

Once there is acknowledgement and the right team is in place – the consecutive actions could be as follows

Executive Leadership Involvement: Senior management must champion the importance of supply chain excellence and allocate adequate resources to support strategic initiatives.

Holistic Approach: Adopt a holistic view of the supply chain, encompassing design, planning, execution, and continuous improvement across all functions and processes.

Investment in Technology: Embrace advanced technologies such as supply chain analytics, automation, and digital platforms to enhance visibility, efficiency, and decision-making capabilities.

Collaborative Partnerships: Foster collaborative relationships with suppliers, logistics providers, and other stakeholders to drive innovation, reduce risks, and optimize value creation.

Continuous Improvement: Cultivate a culture of continuous improvement and innovation within the organization, empowering employees to identify opportunities for optimization and efficiency gains.

Conclusion

We are at the end of the financial year, next years plans and budgets are almost finalized. It may be worthwhile to revisit the outlook for supply chain improvements in the coming year, and make it a part of the plan.