Mastering global disruption

Summary

John Gattorna emphasizes the critical role of supply chains as the business's central nervous system, particularly in the face of increasing volatility and unpredictability. He discusses the need for supply chains to balance multiple objectives such as customer satisfaction, margin, sustainability, resilience, and adaptability. Gattorna suggests a shift towards sovereign supply chains for regional reinvestment and highlights the importance of digitization and real-time data for achieving end-to-end visibility and competitive advantage. He concludes that the ability to make faster decisions than competitors is the key to success in the next decade.

Takeaways

• 🧠 Supply chains are the central nervous system of business, highlighting their critical role in organizational operations.
• 🌪️ We live in a world of volatility with 'black swan' disruptions, suggesting the need for robust supply chain strategies.
• 💸 Companies on average lose 42% of one year's EBIT every ten years due to disruptions, emphasizing the financial impact of supply chain issues.
• 🔮 Supply chains must now address multiple objectives including customer satisfaction, margin, sustainability, resilience, and adaption.
• 🌐 Globalization has peaked from a supply chain perspective, indicating a shift towards more localized approaches.
• 🔄 The concept of 'sovereign supply chains' is introduced as a hybrid approach to reinvest in regional manufacturing and reduce reliance on long supply chains.
• 🛡️ Resilience is measured by the time to recover from disruptions, and overly lean supply chains can become brittle and break under stress.
• 💡 Innovation in supply chain solutions is necessary to address unpredictability and the need for quick recovery from disruptions.
• 📊 Digitization of data along the supply chain is crucial for real-time visibility and decision-making, providing a competitive advantage.
• 🏎️ The ability to make decisions faster than competitors is the name of the game in the next decade, making digital transformation imperative for businesses.

Q & A

What is the significance of supply chains in business, according to John Gattorna?

Supply chains are considered the central nervous system of a business. They are crucial for managing the flow of goods, information, and resources that are essential for the business's operation and success.

What does John Gattorna mean by 'black swan' type disruptions?

'Black swan' type disruptions refer to unexpected and highly impactful events that can cause significant interruptions to supply chains, such as natural disasters or global pandemics.

How often does Gattorna suggest we can expect major supply chain disruptions?

Gattorna suggests that we can expect a major supply chain disruption roughly every five years.

What potential impact can these disruptions have on a company’s financial performance?

On average, companies could lose 42% of one year's Earnings Before Interest and Taxes (EBIT) every ten years due to unplanned disruptions.

How does Gattorna describe the current state of uncertainty in supply chains?

He describes the current state as moving beyond uncertainty to unpredictability, where multiple objectives must be managed simultaneously, including customer satisfaction, margin, sustainability, resilience, and adaptability.

What is meant by a 'sovereign supply chain'?

A 'sovereign supply chain' refers to a strategy where regions reinvest in local manufacturing and supply chain capabilities to reduce dependency on long global supply chains, providing more resilience against future disruptions.

What does Gattorna suggest is the 'Holy Grail' for supply chain management?

The 'Holy Grail' for supply chain management is achieving end-to-end visibility of the supply chain, which allows businesses to see what is happening in real-time and make quicker, more informed decisions.

Why is digitization of data along the supply chain critical?

Digitization of data is crucial because it enables real-time visibility and faster decision-making, which provides a competitive advantage in a rapidly changing business environment.

What does Gattorna suggest about the approach businesses should take towards supply chain management?

Gattorna suggests that there isn't a one-size-fits-all solution; instead, businesses should adopt a hybrid approach that balances efficiency with resilience and adaptability.

What is the future challenge for management, according to Gattorna?

The future challenge for management is the ability to make faster decisions than competitors, especially in a world where digital transformation is critical. Businesses that are not on the digital pathway are considered to be falling behind.

Outlines

00:00

🌐 The Evolution and Challenges of Supply Chains

John Gattorna from Gattorna Alignment emphasizes the critical role of supply chains as the central nervous system of business in a world marked by volatility and unpredictable disruptions. He notes that companies can expect significant financial losses due to these 'black swan' events, with an average of 42% of EBIT lost every ten years. The modern supply chain must balance multiple objectives including customer satisfaction, profit margins, sustainability, resilience, and adaptability. Gattorna suggests a shift from a purely globalized approach to a hybrid model, which he terms 'sovereign supply chains,' to reduce reliance on extended supply chains and invest in regional manufacturing. He highlights the importance of resilience, measured by recovery time from disruptions, and warns against overly lean supply chains that can break under stress. Innovation and sophisticated solutions are key to navigating these challenges. Gattorna also stresses the need for digital transformation and end-to-end visibility in supply chains for real-time decision-making and competitive advantage. He concludes by urging businesses to embrace digital pathways for faster decision-making, which will define success in the coming decade.

Keywords

💡Supply Chains

Supply chains refer to the network of organizations, people, activities, information, and resources involved in moving a product or service from the supplier to the end customer. In the context of the video, supply chains are likened to the central nervous system of business, highlighting their critical role in the functioning and success of an enterprise. The speaker emphasizes the importance of supply chains in addressing new challenges in a volatile world, such as disruptions and unpredictability.

💡Volatility

Volatility in this context refers to the unpredictability and variability in market conditions, supply chain disruptions, and customer demands. The video discusses how the new world of business is characterized by significant 'black swan' type events that can lead to substantial financial losses for companies, thus making volatility a key concern for supply chain management.

💡Black Swan Events

A 'black swan' event is an unpredictable, rare, and significant occurrence with severe impact. In the video, these events are mentioned as causing major disruptions that companies must prepare for. The speaker suggests that companies can expect such disruptions roughly every five years, which underscores the need for robust supply chain strategies.

💡EBIT

EBIT stands for Earnings Before Interest and Taxes, which is a measure of a company's profitability from its core operations. The video mentions that companies could lose an average of 42% of one year's EBIT every ten years due to unplannable disruptions, illustrating the significant financial impact of supply chain disruptions on business performance.

💡Unpredictability

Unpredictability is the inability to foresee or anticipate future events or conditions. The speaker argues that the current business environment has moved beyond mere uncertainty to a state of unpredictability, which requires supply chains to be more adaptive and resilient. This concept is central to the video's theme of supply chain management in a volatile world.

💡Customer Satisfaction

Customer satisfaction is a measure of how well a company's products or services meet or surpass customer expectations. In the video, it is listed as one of the multiple objectives that supply chains must address. The speaker emphasizes the importance of understanding customer buying behaviors and responding quickly to demands for short lead times.

💡Sovereign Supply Chains

Sovereign supply chains refer to a strategy where companies reinvest in local or regional manufacturing and production capabilities to reduce reliance on global supply chains. The video suggests that this approach can help mitigate risks associated with long supply chains and enhance a company's ability to respond to disruptions.

💡Resilience

Resilience in the context of supply chains is the ability to recover quickly from disruptions and continue operating effectively. The video discusses how the time to recover from a major disruption is a key measure of supply chain resilience. The speaker warns that overly lean supply chains can become brittle and break under stress, highlighting the need for a balance between efficiency and robustness.

💡Digitisation

Digitisation refers to the process of converting information into a digital format. In the video, the speaker highlights the importance of digitising data across the supply chain to achieve end-to-end visibility. This capability is seen as crucial for making quicker decisions and gaining a competitive advantage in a rapidly changing business environment.

💡End-to-End Visibility

End-to-end visibility is the ability to track and monitor a product or service from its origin to its final destination. The video suggests that achieving this level of visibility is the 'Holy Grail' for supply chain management, as it allows companies to make real-time decisions and respond more effectively to changes in the business environment.

💡Innovation

Innovation in the video is discussed in the context of finding more sophisticated solutions to supply chain challenges. The speaker implies that the pressure to innovate is driven by the need to address the brittleness of overly lean supply chains and to develop new strategies for dealing with disruptions and volatility.

Highlights

Supply chains are the central nervous system of the business.

We're in a new world of volatility with 'black swan' type disruptions.

Companies can expect a two-month disruption every five years on average.

Unplannable disruptions can lead to a loss of 42% of one year's EBIT every ten years.

Supply chain unpredictability goes beyond uncertainty.

Supply chains must address multiple objectives: customer satisfaction, margin, sustainability, resilience, and adaption.

Understanding customer buying behaviors and responding to demanding customers is crucial.

Globalization from a supply chain perspective has peaked.

A hybrid approach to supply chains, called sovereign supply chains, is emerging.

Sovereign supply chains allow reinvestment in regional manufacturing.

Resilience is measured by the time to recover from major disruptions.

Lean supply chains can become brittle and break under stress.

Innovative and sophisticated solutions are needed for supply chain challenges.

Digitization of data along the supply chain is a critical capability for businesses.

End-to-end visibility in real-time is the Holy Grail for supply chain management.

Companies that started digitization in 2011 are still working on it, highlighting the complexity.

Companies not yet on the digital pathway risk falling behind.

The ability to make decisions faster than competitors is the name of the game in the next ten years.

The old adage 'if it ain't broke, don't fix it' no longer applies; businesses must innovate to stay competitive.

Transcripts

I think we've got to start

with the realisation

that supply chains

are the central nervous system

of the business.

I'm John Gattorna from Gattorna Alignment.

Today we're in a new world of volatility

where we have these big spikes,

these “black swan” type disruptions.

We can expect a two month disruption

roughly every five years.

On average, companies

would lose 42% of one year's EBIT

every ten years

as a result of unplannable disruptions.

So the problem we've got today

is it goes beyond uncertainty

to unpredictability.

The multiple objectives that supply chains

now have to address are:

customer satisfaction, margin

sustainability, resilience and adaption.

We've got to look at the world

from outside in.

We've got to understand

what our customer buying behaviours are,

how quickly to respond to very demanding

customers who want short lead times.

I think it's fair to say

that globalisation over the last

30 or 40 years, from a strictly supply

chain point of view, I think it's peaked.

It's like anything else in life,

it's never one solution.

It's going to be a hybrid approach,

what we call sovereign supply chains,

so that we can reinvest in things

like manufacturing, back into regions.

And if things go wrong in the future,

we're not relying on long supply

chain issues to address.

People talk a lot about resilience,

it's measured by the time

to recover from a major disruption.

And if we get too lean, our supply chain

networks get very brittle.

And when something happens, they break.

It forces us down

the route of thinking more

innovatively about more sophisticated solutions.

So there's some exciting times ahead,

but I think we're in a period of change.

The really big capability

I think businesses are going to need is

the idea of digitisation of data

all along the supply chain.

The Holy Grail is to be able

to get to a point where

we've got end-to-end visibility,

because if that's the case,

we are able to see what's happening

in real-time.

I know companies that have started

on this process in 2011,

and they're still working on it.

But what about those companies

that haven't even started today?

Because if we can get that,

we can make quicker decisions,

and that’s going to give us a competitive advantage.

The idea if it ain't broke,

don't fix it

was a good quote

during the 60’s and 70’s,

but it's absolutely the opposite now.

The name of the game in the next ten years

is the ability of management

to be able to make decisions

faster than their competitors.

In other words,

if you're not on the digital pathway now,

you're going backwards.