The importance of resilience in global supply chain management
Resilience, the buzzword that has gained increasing relevance as global supply chains continue to be tested more than ever before. But what does it really mean? What does resilience look like in global supply chain management? More importantly, why is it so important for a supply chain’s success? In this article, we aim to answer just that.
What is a resilient supply chain?
A supply chain grounded in resilience equips itself with the tools to be tested and respond to challenges in a timely, effective way. Risks in global supply chain are inevitable, but that doesn’t mean that you can’t take the necessary steps to mitigate them. You can exercise resiliency in your supply chain by prioritizing two main pillars: plan and mitigate. Plan for the disruptions to occur so when they inevitably show up at your door you have the tools to address them immediately instead of scrambling for answers and taking huge losses.
Importance of a resilient global supply chain
Events such as COVID-19 and the blockage in the Suez Canal, choking trade flows on both sides of the canal for six days, exposed to the world how fragile global supply chains truly are. As global supply chains involve hundreds of stakeholders, depending on the type of industry, and a myriad of activities, it is inherently prone to disruptions. Disruptions in supply chains can occur in various forms ranging from economic, trade, political, climate and digital, all of which negatively impact day-to-day operations, leading to increased costs and lead times.
Supply chain disruption can be due to companies:
- Not being prepared
- Not flexible and agile
- Not having a wide range of suppliers
- Not having supply chain visibility
- Not being digitally enabled
Supply chain disruptions that didn’t garner much attention in the past have become more probable in recent years. Not only private supply chains, but even governments around the world seem guilty of being unprepared for the recent disruptions, with McKinsey citing, “The US was heavily reliant on other countries for a wide range of products including products that were critical and crucial to the American consumer and industry.” It revealed that the US, like many other developed countries in the western world, sourced a broad range of essential goods from Wuhan, where COVID-19 is said to have originated. These goods include key pharmaceutical ingredients and antibiotics, masks and personal protective equipment, and automotive parts, all of which were in extremely short supply when the pandemic hit the rest of the world.
Data from UN Comtrade showed that:
- China and India exported 42% of global antibiotic ingredients with China exporting 75% of streptomycin and 52% of penicillin
- Taiwanese exports of electronic integrated circuits (semiconductors) account for 43% of global value
- Taiwan and South Korea produce most of the world’s advanced chips
- China exports three-quarters of all personal computers and two-thirds of all mobile phones globally
- In total, around 180 products with a value of around $134 billion are exported almost exclusively by a single country
Naturally, supply chain disruptions from any of these countries could lead (and have led) to global bottlenecks. Companies and countries alike are waking up to a harsh reality of the necessity of building resilience in their global supply chains to sustain themselves. Governments have taken steps to review national supply chains while private sector companies have also gone back to the drawing board to enhance their supply chains to create resilience.
Governments in India, Australia and Japan have learnt some harsh lessons from the pandemic; that dependence on a single source of supply is incredibly risky. To mitigate these risks these countries announced the creation of the Resilient Supply Chain Initiative (RSCI) highlighting the need for regional cooperation on supply chain resilience in the Indo-Pacific region. As part of this, they have encouraged businesses to spread out their production plants to other countries in the region. This enables them to diversify procurement and reduce the risk of supply chain disruption affecting all their suppliers.
Another example of supply chain disruption due to unpreparedness is the congestion issue at US ports which has caused steep increases in ocean freight rates, severe container shortages, and unhappy customers. While the current issues may be due to the increased demand by the US customer, it is also being attributed to the lean method of working in the Just in Time supply chain model, which seems to have been rendered invalid in the current situation.
Actions to make global supply chains more resilient
Global supply chains are complex networks and any failure in one link creates vulnerability throughout the chain. Companies need to create and nurture resilience in their supply chains so they can be proactive, rather than being reactive in addressing these vulnerabilities. Actions that can be taken to create and nurture resilience in supply chain include:
- Understanding and analysing the risks that your supply chain faces both upstream and downstream, and developing mitigation strategies
- Using data analytics effectively to monitor and manage risks from a centralized location, avoiding duplication and ambiguity
- Diversifying your operations so that you’re not reliant on a single source. As global volatility increases, it’s wise to explore other options to protect your supply chain when disruptions occur
- Creating end-to-end visibility with real-time information and automated system-driven push notifications to be informed immediately if a discrepancy occurs anywhere in your supply chain
- Building close and trusting partnerships with suppliers and service providers in the supply chain in order to jointly support each other and find solutions to disruptions
A resilient supply chain allows companies to adapt to global events proactively and have the capability to adjust schedules to accommodate customer requirements. This includes being able to collaborate with vendors and customers effectively using integrated systems including adjustments made to the supply chains for better control.
Next steps in supply chain resilience
While the digital transformation of global supply chains has been on the cards for the last few years, COVID-19 and its impact have accelerated the pace at which the industry is transforming, forcing supply chain leaders to reimagine and reengineer their supply chains quicker. As Gartner states, “while most supply chains in the past were designed for cost efficiency, the future supply chains will have to balance resilience, agility, cost-effectiveness, speed all aimed at customer satisfaction in supply chain.” This impact has challenged supply chain leaders to advance the digital agenda of their supply chains and build resilience to face the potential disruptions of the future.
By understanding the importance of crafting a plan that works for your specific network to see your goals come to fruition, you will ultimately achieve true supply chain resilience. By creating a clear picture of your supply chain and the risks involved, leveraging data and analytics to get ahead of your problems, and exercising transparency and communication both internally and externally across your network, your supply chain can achieve solid resilience now and for the future. Supply chain resilience is the key to a smooth-running supply chain, and the answer to get you out of that constant problem-solving loop. With these practices in mind, what once seemed like a lofty goal isn’t so out of reach.