Ad Hoc Supply Chains: A Force for Good or Ill?

As we have covered in our previous articles in this series, the COVID-19 pandemic had a devastating impact on our global supply chains and, while this may not be the end of the world for more frivolous customer products, the same cannot be said for potentially lifesaving medical equipment and supplies.

The impact of the pandemic required many supply chain organizations to develop new strategies on the fly to get their shipments from one place to another and make sure these critical items got into the hands of the intended end users in as streamlined and timely manner as possible under the conditions.

One strategy which emerged from this period was the establishment of ad hoc supply chains. New connections and methods which were designed to circumvent any delays quickly and effectively with short term solutions using previously untested routes. However, the question remains whether these kinds of ad hoc solutions are effective or whether organizations should focus on long-term solutions instead.

Ad Hoc Supply

According to McKinsey, the need for quick and manageable solutions in the face of global crises is understandable given the impact related disruptions can have on both the performance and survivability of the organizations concerned.

"For companies in most sectors, a single prolonged shock to production could wipe out 30 to 50 percent of one year’s earnings before interest, taxes, and depreciation,” writes McKinsey. "Clogged ports, expensive cargo capacity, and emergency shipments became prevalent during the COVID-19 pandemic. Since then, the conflict in Ukraine has also contributed to product-line closures, transport delays, and spiraling input costs.”

However, while the short-term firefighting method of establishing ad hoc solutions such as employing additional couriers from organizations outside of the usual contracted value chain, or purchasing additional stock to help fill demand, they do nothing to build resilience against such disruptions in the future. In fact, prolonged reliance on such strategies will likely cause damage to the organization concerned through spiraling costs and the potential for overstocking which leaves significant liquidity tied up in inventory which isn’t being used.

"In such cases, CEOs could consider implementing cross-silo efforts that ensure an agile response to fast-moving events,” continues McKinsey. "They could also exhort teams and suppliers to not only adopt appropriate short-term measures but also stay the course for the more difficult long-term reforms, which begin [by integrating and streamlining operations and achieving structural resilience].”

In short, ad hoc solutions should be eschewed in favor of transforming short-term arrangements into more long-term relationships which can be called on when trouble strikes in the future.

Agility over Ad Hoc

To an uncritical eye, it may seem that allowing for ad hoc supply chain practices contributes to creating a more agile value chain which is better able to respond to global crises. And, while this might be superficially true, it not the most effective way to achieve this goal.

Whilst agility can be a somewhat nebulous concept to pin down and measure in the world of business in general and supply chain performance in specific. However, according to Deloitte, supply chain agility can be built in four distinct areas:

• Demand sensing
• Collaborative relationships
• Process integration
• Information integration

While these four concepts may seem independent and somewhat nebulous themselves, they all boil down to a simple chain of processes – the ability to predict demand and disruption, and leverage the power of meaningful partnerships, carefully thought-out process, and data, to meet that demand in the environment in which it is presented. By prioritizing meaningful collaboration and integrating process and data between stakeholders over surface level ad hoc tactics, brands can achieve true agility in the face of disruption.

"In the post pandemic world, the most successful supply chains will find a balance among these three imperatives: agility, efficiency, and resilience,” says Deloitte. "While costs remain a concern, the past two years have exposed the vulnerabilities in over indexing on efficiency. But building in resilience to withstand whatever shocks come next requires investment that can put it in direct conflict with efficiency.”

Final Thoughts

Building true agility should always be preferable to the illusory agility implied by ad hoc strategies. By establishing long-term but flexible relationships with other organizations in the supply chain, medical technology companies can allow for a free and easy sharing of data and process and make sure they are all able to respond with agility whenever the next challenge comes down the road.

"As old ways of doing business are upended, new ways emerge,” concludes Deloitte. "Organizations that can anticipate these new ways and proactively respond will have an opportunity to build new businesses, enter new markets, and take advantage of new sources of supply. Agility requires new mindsets and approaches—but it offers the potential to build substantial competitive advantage. For today’s supply chain managers, it’s time to play offense.”

Agility is certain to be on the agenda at LogiMed 2023, being held in March at The Westin Rancho Mirage Golf Resort & Spa, Palm Springs, CA.

Download the agenda today for more information and insights.