Dynamic Operations: Supply Chain Innovations for the Era of Permanent Volatility

The faster things change, the more companies must alter how they design, source, manufacture, distribute and support products.

That is what is happening today: changes relating to globalization, economic troughs, currency swings, supplier upheavals and political turmoil are becoming more relentless; and the result is unremitting pressure on companies that are trying to adapt.

There is something different about our current business environment. Around the world, business people perceive that things are more chaotic—that risk is more ubiquitous, outcomes less predictable and the pace of change more rapid. This perception is quite real. In fact, various indices show that volatility—the result of tumultuous political, environmental, technological and financial events—is double that of any point in the past 30 years. It should not be surprising, therefore, that more than 80 percent of executives responding to a recent Accenture survey have questioned the resilience of their supply chains.

This state of permanent volatility is unlikely to subside anytime soon, and no business process appears to be affected more directly or heavily than supply chain management.

Consider some of the ways that volatility affects supply chain management. Governmental and political issues directly influence currency rates, which in turn impact the supply chain. Fluctuating commodity prices are another contributor to permanent volatility. Oil is the most obvious case, but prices are oscillating just as violently in other areas.

Even “natural” events have been wreaking increasing havoc on people, property and supply chains. For a considerable time, the Japanese tsunami depressed the stock prices of most consumer electronics companies.

The net effect is that permanent volatility—multiple events (large or small, gradual or instant, man-made or natural) hitting simultaneously with increasing frequency, intensity and pace—is not going away anytime soon.

Decision makers should also plan to evaluate each individual supply chain by functional area. The idea is to understand which processes and functions are critical to the business strategy (and thus should be optimized) and which are used across the business (and thus should be more fully standardized). Once this is done, companies are better positioned to implement, optimize and combine the four core capabilities that constitute what Accenture calls a Dynamic Operations framework.

Working together, Dynamic Operations’ four capabilities can make it possible to turn volatility into opportunities.

The four capabilities are:

• Insight to Action—Sensing, capturing and analyzing external and internal data and turning it into usable business intelligence. In effect, using information to improve the company’s ability to react swiftly to both threats and opportunities—buffering risk while leveraging risk’s upside.

• Adaptable Structure—A toolkit for helping maximize a company’s ability to respond rapidly and productively to change.

• Flexible Innovation—The ability to rapidly alter process attributes, product quantities and item designs based on shifting circumstances is a potentially huge advantage.

• Agile Execution—Adjusting supply chain actions in response to changing external events.

Most business leaders are aware that a new era of volatility has arrived and that a common outcome is increased risk. According to a recent Accenture survey, 98 percent of responding executives believe that risk management is a higher priority than it was two years ago. And more than 80 percent said they worry about the resilience of their companies’ supply chains—the ability to adapt operationally to rapid changes in products, markets, currencies and business conditions.

On the positive side, more than 90 percent of the same survey’s respondents believe that stronger risk management programs are important or critical to long-term growth and profitability.

In addition, results of a MIT research initiative revealed that while only 10 percent of manufacturers have mature systems and processes for addressing supply chain risks, those that do are 75 percent more profitable than their competitors. This tells us that, although permanent volatility is a significant supply chain problem, there are viable and potentially profitable responses.

Companies must also consider that Dynamic Operations is a journey, a process and to an extent, a constant evolution. After all, change is constant and continuous. Value propositions are not static. In addition, no company has (or is likely to) a perfect Dynamic Operations capability.

However, a growing number of leading-practice organizations are moving toward Dynamic Operations in ways that are aggressive, but still make individual sense. But they also are acknowledging and working to incorporate a variety of basic truths:

• They are preparing more diligently for the unexpected.

• They are working harder to seek synergies and leverage existing strengths.

• They are creating targeted innovations that build new capabilities without compromising the effectiveness of old capabilities.

• They are continuously strengthening their market insights, working to capture data quickly and take it into business and operating decisions.

Important, individualized and potentially imminent, Dynamic Operations—in all its forms and all its increments—is clearly an investment worth considering.