For many of us, the N95 surgical masks came off a while ago, and it has been steadily getting easier to breathe. And that’s not just the case with our physical health but also with the health of our transportation and logistics systems.
The Council of Supply Chain Management Professionals’ (CSCMP) annual “State of Logistics” report, which came out in mid-June, showed that U.S. business logistics costs dropped 10% in 2023 from the previous year. According to the report’s lead author, Josh Brogan of the consulting firm Kearney, we are seeing a reversion to prepandemic levels of cost.
But with the pandemic crisis finally dissipating, we now face what’s perhaps a more insidious challenge: the tendency to slip back into old bad habits. Remember how the pandemic exposed to the world just how fragile our logistics systems were? How a hyper-focus on cost and efficiency made it hard for us to be resilient and flexible? For the past few years, we have been focusing on resiliency, but now the pendulum is starting to swing back.
Some of that backswing is warranted. As Brogan said during the media briefing for the “State of Logistics” report, “The play over the last few years had been ‘Get product to the consumer at whatever cost,’ and that made sense.” But with the sharp drop in transportation costs in 2023, that strategy no longer makes sense, and “there is an element of managing the network for cost that was reinstalled.”
However, with that reinstallation, supply chain organizations must not forget all the lessons learned from the pandemic. At the opening keynote session for the Gartner Supply Chain Symposium/Xpo, Gartner’s research vice president, Tom Enright, sounded the alarm on this front, telling the audience that Gartner analysts are hearing from many clients that there is increasing pressure for the supply chain to return to “managing to cost.”
“Now, I know I am playing to the home crowd here, but seriously? Anybody who thinks that organizations can thrive by viewing the supply chain as a cost center is just plain flat wrong,” said Enright to hearty applause.
Enright argued that returning to a traditional focus on cost reduction and efficiency is the wrong way forward for supply chains. Such a move will make supply chains vulnerable to the inevitable next crisis.
Instead, supply chain leaders need to borrow a page from the CEO’s handbook. Gartner’s surveys of CEOs show that even though cost reduction has moved up respondents’ list of strategic priorities in the last few years, it still remains well down the list. However, when supply chain leaders are asked the same question, they still rank cost reduction as their number-one concern.
Enright is not saying supply chain leaders should maintain the “get the product to the consumer no matter the cost” approach that was necessary during the pandemic. Rather, supply chain leaders need to embrace a “cost and” approach. For example, cost and a focus on sustainability, cost and a focus on commercial innovation, cost and a focus on managing risk. Different market segments will, of course, have different priorities.
It’s only by knowing what your “and” is that supply chain will be able to retain its seat at the decision-making table, continue playing an essential role in driving business value, and make sure that the company is prepared to navigate the next disruption.
