Everything You Need to Know About Supply Chain Resilience
Supply chains faced unprecedented challenges and disruptions during the COVID-19 pandemic. In a survey conducted by Interos, more than 90% of organizations said they expected the disruption of their global supply chains to have long-lasting effects on their businesses. Supply chain resilience plans and processes would have enabled many of these organizations to prepare for, and respond to, these impacts.
What is supply chain resilience?
Supply chain resilience — the ability to prepare for and mitigate risk from unexpected and potentially disruptive events — is an essential part of supply chain design and planning. Even today, many organizations don’t properly address this issue, leaving them vulnerable to global events like COVID-19.
Building a resilient supply chain is about more than just surviving a pandemic. It's about being able to respond to natural disasters, accidents, market turmoil, and even intentional disruptions. While organizations can’t fully eliminate all unknown risks and threats, they can lessen their impact and respond to them more effectively.
How do you build supply chain resilience?
Strategically position inventory buffers
One of the most important ways to increase your supply chain resilience is to create well-thought inventory and capacity buffers. Having “just in case” inventory on hand can help better address challenges associated with unexpected demand (e.g., new product launches succeed beyond expectations) or supply side shocks (production outage or component supplier losing capacity due to an outage) and account for demand and supply side variabilities. By using supply chain analytics, organizations can better prepare for future conditions and make more informed choices around buffer capabilities and working capital.
Diversify sourcing and manufacturing capabilities
The United States/China trade war showed us that diversifying sourcing and manufacturing capabilities are essential to creating a more resilient supply chain.
Organizations that manufactured or sourced exclusively in China learned the hard way and found themselves dealing with high tariffs cutting into their already razor-thin profit margins. Diversification also offers greater resiliency in the wake of natural disasters. Major hurricanes, earthquakes, and tsunamis have caused major interruptions to supply chain management over the last decade, and having suppliers and operations in multiple locations can lessen the impact. Organizations single sourcing through China should explore a ‘China Plus One’ strategy to build optionality.
Organizations can achieve an appropriate level of diversification by working with geographically diverse suppliers. This reduces the likelihood of having a single point of failure that could harm your ability to get your products into the hands of consumers. Supply Chain Design capabilities can help with this source selection strategy.
Shorten supply chains through nearshoring
Nearshoring is another effective technique to boost supply chain resiliency. The growing trend in businesses trying to reduce the distance between the suppliers in their global networks has led to significantly decreased cycle times. While local supply chains can carry higher costs, they also allow for far greater visibility over inventory and make it faster to get products to paying customers. As labor costs increase, companies can offset that with savings from shorter shipping distances, reduced need for ‘just in case’ buffers, and reduced inventory write-offs. Another benefit of nearshoring is a reduced carbon footprint and a positive impact on the environment.
Many of these techniques increase supply chain resiliency by improving flexibility. Flexibility puts you in a position to mitigate the effects of large disruptions like global pandemics, and to better account for changing customer behavior and buying patterns. You can increase flexibility by adopting standardized processes across your organization. Using interchangeable parts during the production process can minimize disruption by moving resources where they're needed quickly. If one production facility suddenly experiences a part shortage, you can always reallocate some from a second location so that the process can continue uninterrupted.
What are the benefits of a more resilient supply chain?
In the end, a business's ability to deal with the unexpected and to recover from disruption has always been a core contributing factor to its success. In addition to saving you time and money, a more resilient supply chain improves your reputation, enhances your relationship with customers, makes you an overall stronger organization, and helps form the basis of your competitive advantage in the marketplace.
Resilient supply chains work by allowing you to both understand and extract raw value from the data your organization is creating. Connected devices are a big part of this, but the same is true of advancements like artificial intelligence, machine learning, and more.
By ensuring the proper supply chain resilience plans and processes are in place, your organization is able to deal with universal risks better than your competition can. You may even be able to turn those disruptions into opportunities — which for many, will be the most important benefit of all.