Turn 2022 Supply Chain Strategic Planning Into a Competitive Advantage

By Veena Variyam | September 07, 2021 | 0 Comments

Supply ChainPower of the ProfessionSupply Chain Strategy, Leadership and Governance

With 2021 soon to be in the rearview mirror, now is a great time to take stock of where we’ve been and how we might approach strategic planning differently in the future.

As we all know, the recent spate of global disruptions such as the COVID-19 pandemic, geopolitical upheavals and extreme climate events has far-reaching impact on various industries and supply chain organizations. That said, less than 50% of supply chain leaders believe that their organizations performed better than their competitors during the past year. It’s no surprise then that supply chain organizations are striving to become future fit in the wake of severe disruptions and to prepare for the severe disruptions to come. Future-fit organizations actively prepare to respond to disruptions and anticipate change; they maintain competitive advantage during highly uncertain business contexts.

Strategic planning, if done well, is a critical lever to build future-fit supply chain organizations. Unlike other years, 2022 strategic planning must be different — we can no longer rely on our traditional strategic planning approaches that last for months and result in creating a strategy that is fixed until the next annual review. The business context is likely to continue to change, and the supply chain strategy and strategic plans will need to adapt to this reality.

Our conversations with hundreds of senior executives and CXOs in supply chain organizations reveal four key imperatives to enable strategic planning that drives sustained strategic advantage:

Elevate Disruption Shaping as a Strategic Planning Goal

To reduce the impact of frequent, unfamiliar disruptions on the supply chain, supply chain leaders have to embed disruption shaping in strategic planning. Gartner identifies three major phases in developing an enterprise strategy: strategy formulation, strategy planning and strategy execution (see Figure 1). Most supply chains today plan for unfamiliar risks as they execute the supply chain strategy. Instead, CSCOs must elevate disruption shaping to the strategy planning phase. Leading organizations reduce the rate of disruption by making their supply chains smaller targets in this volatile risk environment. This goal of disruption shaping must cascade down from strategic planning to action plans and appropriate tracking measures. Supply chain organizations that actively embed disruption-shaping strategies are likely to experience less than one-third of the disruptions experienced by their response-focused peers.

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 Move to an Adaptive Strategic Planning Process

Most supply chain organizations conduct strategic planning on an annual cadence — however, this approach can leave organizations less responsive to market threats and opportunities that occur outside of planning cycles. Adaptive strategic planning can help supply chain leaders respond to unprecedented change and uncertainty. It starts with building a strategic planning cadence that gathers supply chain leaders and other relevant stakeholders to review the strategic plan multiple times during the year, ensuring that it remains relevant to market conditions. Continual scanning of emerging risks and trends, minimum viable strategy and strategic plans, and experiment-based strategies are all building blocks of adaptive strategic planning.

Tractor Supply Company (TSC) is an exemplar in using adaptive strategic planning to drive competitive advantage. To better respond to the disruptive changes in the highly competitive retail market, TSC continuously monitors and identifies market trends that likely impact supply chain strategy significantly, assesses capabilities to take advantage of these trends and conducts more frequent strategic plan reviews to prioritize supply chain action. The quick shift in supply chain strategic plans enabled TSC to prioritize and roll out same-day delivery to its stores early in the pandemic — the company saw 7.5% year-over-year increase in first quarter net sales and a 4.3% increase in comparable store sales in 2020 from 2019.

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Surface Strategic Assumptions to Determine When to Change Course

Clear assumptions are the foundation for keeping supply chain strategic plans relevant while also maintaining strategic focus. Spending time up front on explicit and implicit assumptions helps supply chain leaders vet the strategic plan periodically and makes it easier to spot the need for a refresh. However, unlike in previous years, we cannot cascade the strategic assumptions underpinning our previous plans, as most of these assumptions are likely irrelevant in light of the massive upheavals in business and economic operating contexts. Instead, supply chain leaders must begin by taking a clean-sheet mentality to business assumptions in 2022. Leading supply chain organizations take the following critical steps:

  • Surface and document all critical assumptions underpinning the new business strategy, and prioritize them based on how critical they are to the success of the strategic decisions.
  • Create tangible near- and mid-term indicators for the assumptions to objectively track their validity over time. These could be internal indicators (e.g., our company is able to acquire technology licenses from firm X) or external indicators (e.g., worldwide ocean traffic to grow by Y%).
  • Leverage scenario planning exercises to test the validity of their strategic assumptions and uncover hidden assumptions.

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Embed Flexibility in Supply Chain Budget and Resource Allocation

Seventy-two percent of corporate strategists say slow budget reallocation is the biggest barrier to a more adaptive plan. The deeply interconnected nature of a fixed annual budget makes it hard for the supply chain organization to pivot quickly. When unexpected events happen that require changes to the strategic plan, highly interconnected annual budgets often lack rapid resource-reallocation mechanisms, preventing next steps. Without the power to reallocate funds quickly, supply chain leaders can only make limited changes to their plans in the short term. Leading organizations take the following steps to drive more flexibility into their budgeting approach while balancing cost optimization and innovation priorities:

  • Start with a rigorous view of supply chain spend and investment allocation in the last year to get a baseline estimate of critical spend across each functional area.
  • Build budget scenarios and reallocation triggers to account for changing business needs.
  • Adopt multiple and flexible funding models that support changing priorities and sustain innovation focus in varied business environments.

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So there you have it. By considering and acting on these four imperatives, supply chain leaders can pave the way for strategic planning that drives sustained strategic advantage. Best of luck as you plan for 2022!

Veena Variyam
VP Supply Chain Research
Gartner Supply Chain
Veena.Variyam@gartner.com

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