Building a resilient, and future proofed supply chain
The growing customer demand has been phenomenal over the years and is still on an upward trajectory. Modern supply chains have fared quite well in rising to the challenges of handling this demand, morphing from a linear process to a system of complex networks.
But along with this growth and development in supply chains, vulnerability also has crept in and has become an issue of great significance for many companies. Supply chain managers are working hard to simplify risks associated with supply chains. These risks have become more complex in nature due to global sourcing, application of lean and a plethora of other issues plaguing the industry.
The challenges that supply chain managers face in trying to manage and mitigate supply chain risks can be overcome by making their supply chain resilient, efficient and future-proof.
What makes up a resilient supply chain?
A resilient supply chain is one that is able to return to its original form or evolve to a better and desirable form after undergoing disruptions. Resilient supply chains are flexible, reliable, scalable, adaptable, visible, and agile, and have the capability to adjust to new demands and change as required by the market.
21% of survey takers have a highly resilient network with the required visibility and the agility to shift sourcing, manufacturing, and distribution activities while 50%+ expect to be resilient within two to three years.
With recent challenges such as the COVID-19 pandemic, exorbitant freight rates, space and equipment shortages leading to supply chain disruption, it is imperative that companies have a good balance between supply chain resilience and efficiency in their operations such as access to real-time data and supply chain visibility. Striking this balance may not be an easy task. Building a resilient supply chain often results in additional costs and resources which may not be available to many companies. But through re-engineering the supply chain processes, efficient human resource management, leveraging proper technologies like digital supply chain platforms, companies can navigate the quagmire of disruptions and build a resilient and efficient supply chain, which in the end, saves them time and money.
Some of the strategies followed by resilient supply chains are
- Risk management
- Supplier management
- Efficient inventory management
- Risk management in supply chain is one of the biggest issues facing supply chain and procurement managers. The involvement of multiple suppliers and the high number of transactions can easily give rise to difficulties in tracking supplies, issues with visibility, reduced revenues, high logistics costs limiting the company’s ability to manage supplier and operational risk.
Consistent and constant supplier engagement and involvement are important in managing related risks, creating flexibility, ensuring visibility, and building resilience in the supply chain. It is important to analyse the risks posed by the various suppliers and measure the impact and likelihood of each of these risks. This analysis is critical to be proactive and safeguard the company against risks
- Flexibility in supply chains is one of the key factors in creating and maintaining a resilient supply chain. With flexibility, companies can adapt to market changes and respond to fluctuations in demand. Flexibility in supply chains is the ability to respond to changes in demand or supply coupled with the ability to adjust the strategic and structural environment in the supply chain.
There are a few different types of flexibilities in supply chain such as volume flexibility, product flexibility, delivery flexibility and supplier flexibility which requires a combination of agility and adaptability. Flexibility can be achieved by having simultaneous processes instead of consecutive processes which allows the handling of various products at the same time. This flexibility will allow the system to adjust production and distribution levels as per the demand and also substitute products and achieve a good product mix within a short span of time.
- Supplier management is a very crucial element to achieve supply chain resilience. Supply chain managers need to ensure that they document and analyse the capabilities of all their suppliers in terms of the scale of their company, flexibility to adapt to changes in the orders, how they manage and run their facilities. Relationship building with suppliers is key. The company should have multiple suppliers in all the key geographies and locations served by the company as a backup when there are disruptions in one area.
The supplier capabilities should be audited on a regular basis to ensure that they are still capable of catering to the company’s demands and that their processes are still relevant in this ever-evolving global supply chain industry. There should also be a good mix of high cost/quick access suppliers and low cost/slow access suppliers so the company can adapt to any disruption.
- Digitalization is another method to achieve a resilient and future-proof supply chain. Supply chain analytics and visualisation tools greatly help improve supply chain visibility. Even established supply chains like Toyota realised the importance of visibility when their supply chains broke in the aftermath of the 2011 tsunami and earthquake in Japan. It took Toyota six months to rebuild their supply chain.
Learning from this experience, Toyota used the data insights gathered from its analytics and converted it into actionable insights to improve its flexibility particularly in its supplier management and procurement. Using the analytics and visualisation tools like Google Earth, Toyota was able to categorise their entire supply chain from the sourcing of raw materials untill the delivery to the end customer.
As per Deloitte, below analytical and visualisation tools can be used to manage risk in the supply chain.
- Diversification also includes near-shoring, which is aligning with suppliers closer to the company’s production facilities which can then assist in reducing supply lead times. While this may be slightly more expensive than the conventional supply routes, nearshoring is a good alternative for many companies especially in high-demand countries like the USA. Through collaboration with strategic suppliers and partners, a supply chain can be better prepared, resilient, and future-proofed to mitigate any future disruption. COVID-19, the trade wars and the current capacity crunch faced by global supply chains have spurred another method of achieving supply chain resilience and that is through network diversification.
- Inventory management is an effective way in which a company can reduce costs, avoid underutilisation, and enhance resilience. Although conventional wisdom suggests that surplus inventory is seen as a waste of space, money, and resources, having some level of buffer inventory especially at key pinch points can be beneficial in ensuring a resilient supply chain. Proof of this benefit was with the sudden onset of COVID-19, when many companies around the world faced huge shortages of inventory. Subsequently, many reimagined their inventory management from the “Just in Time” concept to a more robust and flexible approach. Whether it is surplus or shortage, both can create some slack in a supply chain and the strategic and selective use of the slack can assist in supply chain resilience.
Network diversification means the ability or need for companies to diversify their procurement sources which include switching suppliers outside of the traditional supply routes or getting the suppliers to supply from other countries. As disruptions in the supply chain are increasing, many companies are seeing the retention of multiple supply chain locations as part of the cost of doing business. Multisourcing is seen as a way to mitigate the risks of depending on a single source, but for this to be effectively used, supply chain managers must have good visibility of their supplier’s networks.
Gartner survey data shows that around half of supply chain organizations are either using external manufacturers or exploring how they can support product moves, with a similar proportion engaging logistics partners for this purpose.
Managing risk and boosting resilience has become the hallmark for a successful supply chain and especially in adapting to the new global realities. COVID-19 has exposed the weaknesses and vulnerabilities in many supply chains around the world, highlighting the need for a resilient, efficient and future-proof supply chain. Supply chains that are resilient, predictive and transparent are the ones that will succeed in the future.
A resilient supply chain will be
- Aware of risks, predict disruptions, respond effectively
- Secure, transparent
- Quick and optimised
- Use data and digital tools effectively
The essence of a resilient supply chain is the ability to manage and adapt to unforeseen disruptions and managing the associated risks whether it is day-to-day operational risks or a risk that affects the entire supply chain. It is the ability to respond to sudden changes with improved real-time visibility and risk identification. It is the ability to adapt and evolve through effective scenario planning, modelling and risk analysis. It is the ability to manage uncertainty through flexible operations, strategic inventory management and diversification.