“Explore and Exploit” to Create Supply Chain Resilience and Innovation

The cost of indecision

Indecision costs companies. Per McKinsey, Fortune 500 companies lose an average of $250M per year to inefficient decision-making. And constant volatility leaves many organizations indecisive and loss averse, struggling to move beyond the status quo.

That spells disaster for organizations trying to innovate amid uncertainty.

But supply chain leaders can avoid analysis paralysis—and make innovative decisions to cut costs and boost revenues amid uncertainty.

Successful supply chain leaders “explore and exploit” uncertainty to place the right bets.

Supply chain leaders change their mental models to place the right bets—even under the threat of new disruptions. Instead of relying on traditional decision-making methods, they take a lesson from game theory and learn to “explore and exploit” amid uncertainty.

In game theory, “explore and exploit” describes two modes of experimentation:

• Explore: Search widely and expand horizons. Cover new ground to find opportunities and resources.
• Exploit: Focus on discovered opportunities and resources. Dig in. Test, learn, repeat.

Leaders place the right bets by first exploring the opportunities and resources available. They then maximize value by making decisions that create the most value while still leaving options available for future exploration.

Build a portfolio of options

Leading organizations use an explore-and-exploit approach to decision-making. They don’t confine themselves to an either/or mentality. They create flexibility with a portfolio of options. Greater flexibility drives results—and reduces the risks associated with placing big, irreversible bets or investments.

What flexibility means for supply chains

Organizations can use an explore-and-exploit mentality to search for opportunities in parallel to existing operations. In the process, they uncover new, innovative paths to success—and gain a competitive advantage over other organizations struggling with the status quo.

For example, traditional supply chain networks require large capital investments for fixed industrial capacity. Rather than solely focusing on big bets on fixed assets, supply chain leaders can explore additional, flexible solutions to optimize supply chain networks.

Explore: Fixed asset alternatives and new technologies

Warehouse demand remains high nationally. And with constant demand driving costs upward, savvy supply chain leaders consider whether net new industrial leases take priority. Fixed asset alternatives reduce CapEx spend.

And organizations can use an explore-and-exploit mentality to capitalize on existing networks while investing in new technologies in the long term. These technologies pay off. For example, sorting automation and robotics cut down on total picking time. Collaborative robots decrease order processing time to deliver goods to customers—fast.

Exploit: Improve networks, improve customer experiences

Supply chains affect customers’ brand experiences more than ever. Eighty-three percent of consumers switch retailers for faster delivery. And 72% of consumers skip repeat purchases due to late deliveries.

But fast shipping costs organizations. Forty-five percent of brands don’t offer fast shipping options because it makes total costs too high. Transportation costs account for 50-70% of US logistics spend. And as rent rates continue to spike, adding fulfillment nodes to accelerate delivery is costly.

There’s a path forward, however. To improve delivery promises and save on transportation, retailers first reassess their warehouse locations. Optimized networks place goods nearer partners and customers to reduce transportation time and costs. The result: lower costs and faster eCommerce deliveries.

Don’t lose out to indecision. Profit from new decision-making models

Indecision costs organizations. But supply chain leaders build flexible portfolios with new decision-making models. Success emerges from both exploring new opportunities and exploiting existing resources.

That means new disruptions don’t stop organizations from pursuing new strategies. The result: new opportunities to compete and win, despite uncertainty.

You might also be interested in:

• Video: Aterian Uses Flexe Logistics Programs to Achieve 97% Two-Day or Less Delivery Speeds
• Webinar: Reducing Forecast Risk with Supply Chain Flexibility
• Article: Decision-Making Amidst Uncertainty: Invest in Flexible Decisions. Beat Supply Chain Volatility