Some of us may remember the COVID-19 pandemic as the time the rest of the world became familiar with the phrase “supply chain disruption.”
But many other potential events can disrupt supply chains, including geopolitical incidents such as Brexit or the war in Ukraine, material deficits or shipping delays caused by labor shortages or transportation hangups, and excess or insufficient inventory triggered by changes in consumer demand. Climate change represents perhaps the most looming threat to the future of today’s supply chains.
Why does it matter? Everything in a global economy — from medicine to car parts to food — depends on supply chains to transform raw materials into manufactured goods that make it to your customer’s doorstep.
Even AI, which has the potential to predict and plan for supply chain disruptions — as you’ll read about later in this article — relies on the manufacture and distribution of AI chips. Our modern lives depend on supply chains running smoothly to move our economy and world forward, and supply chain professionals are feeling the pressure to make that happen.
What is supply chain resilience?
Supply chain resilience refers to two equally important capabilities:
- The capacity of a supply chain to adapt and recover swiftly from unforeseen events, and
- The ability to anticipate, plan for, and respond to disruptions before they occur.
Supply chain resilience is more than ensuring materials or goods arrive from Point A to Point B on schedule. It is essential for ensuring your company has a robust supply chain that can handle external shocks and recover quickly with minimal loss of revenue and profits — which, in turn, impacts how society functions from the local to the global level.
Businesses rely on resilient supply chains to protect their bottom lines by keeping operations running and revenue flowing even when a disruption occurs. Resilient supply chains mean more resilient businesses — helping to reduce risk, navigate challenges, and protect trusted relationships with vendors and customers alike.
For consumers, supply chains keep the shelves stocked and stores full. By keeping goods reliably available, strong and resilient supply chains also help keep prices stable for consumers.
Through a macro lens, resilient supply chains keep our communities strong and stable by ensuring an uninterrupted supply of goods and services. For essential goods like food, medical supplies, and energy, supply chains are critical to public health and safety.
All told, supply chain resilience ensures businesses, homes, and entire economies can run reliably — even in the face of crises or interruptions.
What makes a supply chain resilient?
The true measure of supply chain resilience is time to recovery (TTR). Once a disruption occurs, how quickly can your supply chain adjust, recover, and continue operations? In the fastest of these scenarios, you’ll be able to anticipate a disruption, plan in advance, and recover without missing a beat. Other times, a disruption will appear out of nowhere, and you’ll need to pivot to get back on track. True resilience requires the ability to handle both situations.
Risks vary according to each unique company and industry. For example, a paper company with plants that run 24/7 would be deeply impacted by even a temporary plant shutdown caused by power outages or local events. A manufacturing company that relies on receiving raw materials from different parts of the world will feel the impact of foreign market changes.
Knowing the risks that are most likely to impact your supply chain is key to designing a resilient supply chain that can withstand those risks. With proper foresight and planning, businesses can manage disruptions in stride without having to spend on costly emergency measures, such as expensive expedited shipments.
Challenges in achieving supply chain resilience in today’s global economy
Supply chain disruptions can come from many sources, and each brings its own set of variables to consider and challenges to overcome. They can range from large-scale global events to local occurrences. Here are a few of the most common.
Geopolitics
Political instability, trade wars, tariffs, and sanctions can all impact global supply chains, often in complex and unpredictable ways. For example, the UK’s departure from the European Union — popularly known as Brexit — left many businesses uncertain of how legal and regulatory changes would impact their ability to buy and sell goods.
One look at a newspaper or social news feed shows there is no shortage of geopolitical events impacting supply chains today — from Houthi groups attacking supply lines in Yemen to sanctions against Russia and Iran to the ongoing U.S.-China trade war.
Climate change
Climate change presents perhaps the largest and most persistent threat to the supply chains of today and tomorrow. Climate-related disasters have increased by 83% since the 1980–90s.
Extreme weather events such as hurricanes, wildfires, freezes, and tornadoes can devastate entire regions and lead to further downstream impacts like flooding and demolished infrastructures. Sustained events like drought can lead to prolonged strains on food and water supplies. Long term, climate change may lead to the displacement of entire communities.
Labor disruptions
Labor disruptions encompass a wide range of challenges that can significantly impact supply chain resilience. Strikes, such as the 2019 United Auto Workers strike that cost General Motors an estimated $3.8 billion, are a notable example.
However, labor disruptions are not limited to strikes. Companies may struggle to hire enough skilled workers to keep up with the pace of business. Even skills gaps within your existing team can strain the efficiency and effectiveness of your supply chain. For example, as travel boomed post-pandemic, many airlines have struggled to hire enough pilots to meet demand, leading to flight cancellations and a lot of unhappy travelers.
Economic pressures
In today’s global economy, economic pressures can originate from many sources and trigger widespread impacts on supply chains. For instance, the COVID-19 pandemic created a perfect storm of unprecedented challenges, such as sharp downturns in demand, disruptions in production, and pricing volatility.
Recently, inflation has been an especially persistent pressure point, with rising costs of raw materials and transportation impacting businesses and consumers worldwide. Since 2022, numerous companies have raised prices on many of their products to offset increased costs due to inflation.
Additionally, tariffs and trade wars can strain supply chains by increasing costs and fueling uncertainty. Take trade tensions between the United States and China. These have led to higher tariffs on goods, forcing companies to reconsider their supply chain strategies.
Even simple shifts in consumer demand can have noticeable effects. Consider the Stanley Quencher tumbler craze. Powered by popularity and social media influencers, demand for these travel mugs has skyrocketed, leading to shortages, purchase limits at retailers, and even some wild headlines like this Stanley mug heist.
Regulatory and compliance laws
Changes to laws and regulations can also impact supply chains. For example, changes to environmental law may require companies to update their equipment or seek out more local suppliers in order to reduce carbon emissions.
Other times, laws may ban or limit certain chemicals or byproducts. A classic example is the banning of DDT in 1972. Once broadly used to control agricultural pests, farmers and state agencies had to find replacements post the ban. More recently, both the US and EU have made changes to limit or ban the use of PFAS, also known as “forever chemicals” in many products.
Transportation challenges
For companies depending on global supply chains, a shipment delay on one continent can severely impact downstream manufacturing processes or the delivery of finished goods or services on another continent. For smaller companies, even the late arrival of a single truck — due to road closures or engine trouble — could have far-reaching and negative business impacts.
Strategies for building resilient supply chains
Traditional approaches to supply chain management include strategies such as maintaining a surplus of “buffer” inventory, diversifying suppliers or geographic locations, and building in redundancies to cover transportation or IT disruptions.
Some of these approaches may still be considered best practices and make sense for some businesses. For others, though, they may be too costly or inefficient to be sustainable — such as paying to store extra inventory “just in case.”
Modern strategies to build true supply chain resilience take smarter and more agile approaches. Core components of efficient and sustainable supply chain resilience include:
- Obtaining accurate, reliable, and actionable data
- Achieving end-to-end visibility of your entire supply chain
- Prioritizing continuous network design over episodic or ad hoc design
- Proactively assessing and managing risk
- Breaking down the barriers between supply chain, procurement, and finance
Accurate and reliable data
Having access to reliable, accurate, and up-to-date data is paramount to making informed decisions that enable supply chain resilience. Data and actionable insights hold the keys to optimizing your inventory to ensure you’re not under- or overstocked. It can also help you identify and prioritize your top supplies — and weed out the ones that don’t perform well.
End-to-end visibility
The more complex supply chains become, the more susceptible they are to upstream disruptions. Being able to see the holistic, end-to-end picture of your supply chain will give you the visibility to spot risks and impacts before they happen.
Continuous design
It was once common to evaluate and redesign your supply chains annually. That won’t cut it in today’s complex and fast-moving global supply chains. To stay ahead of the curve, you should be continuously and actively designing your supply chain on an ongoing basis. This entails using a digital twin to simulate, experiment, and analyze the impact of disruptions based on up-to-date data and real-world scenarios.
Risk management
Supply chain resilience is all about anticipating and managing risk. Effective supply chain strategies assess and evaluate risk on a continuous basis. This helps supply chain managers spot and stay ahead of potential disruptions — such as inclement weather events or transportation delays — as well as helps them optimize over time by uncovering and replacing risky suppliers or supply sources.
Coordinated operations
Supply chains are complex structures. To make sure they continue to run smoothly, your supply chain, procurement, and finance teams must work together. That means continuously sharing data and insights, aligning on goals and objectives, and adopting consistent processes and technologies to manage functions like ordering, invoicing, and fulfillment.
Coupa’s role in supply chain resilience
Intelligent spend management is foundational to building a resilient supply chain for any company. For example, using a digital supply chain twin based on real data offers the ability to run and test scenarios, weigh the probability of certain risks, and create contingency plans.
This proactive approach allows companies to anticipate disruptions, manage resources efficiently, and maintain the smooth operation of their supply chains, even in the face of unexpected events.
Third-party risk management
The first step in recovering from disruptions is understanding risks before they occur. Working with any third party opens up your company to new vulnerabilities — and the large majority of supply chains are composed of multiple third-party entities.
Actively monitoring and analyzing your supply chain for third-party risks is essential and part of any continuous design approach. This involves evaluating the financial stability, compliance, and operational reliability of suppliers and partners to identify potential threats early and respond swiftly.
Sourcing optimization
Sourcing optimization plays a critical role in enhancing supply chain resilience by identifying risky suppliers and finding reliable alternatives. Using advanced analytics and AI, Coupa users can assess supplier performance, monitor market conditions, and identify potential risks — and opportunities — associated with specific suppliers. This can lead to benefits like stronger supplier relationships, better terms, and better overall supply chain efficiency.
Supply chain collaboration
Effective supply chain collaboration is key to achieving resilience. By fostering strong communication and alignment with suppliers, businesses can create a more agile and responsive supply chain.
This involves real-time information sharing, such as inventory levels, demand forecasts, and production schedules. Collaborative tools and platforms can facilitate seamless communication and position teams to recover from supply chain disruptions quickly.
Supply chain design and planning
Continuous supply chain design and planning involves regularly evaluating and optimizing your supply chain network to adapt to changing conditions and demands. Despite its strategic value, only 9% of companies are designing continuously.
Supply Chain Design and Planning from Coupa uses advanced modeling and simulations powered by AI to enable businesses to design robust supply chains that can withstand disruptions and recover quickly. Effective supply chain planning includes scenario analysis, risk assessment, and contingency planning to ensure businesses can respond to both anticipated and unforeseen challenges.
If you’re missing any of these pieces, you aren’t getting the full picture of your supply chain and the risks that put it in jeopardy. Intelligent business spend management from Coupa shows you the holistic view of your end-to-end supply chain so you can spot and recover from disruptions quickly.
How Coupa is using AI to help you build more resilient supply chains
Artificial Intelligence (AI) is revolutionizing supply chain resilience by enhancing forecasting, demand modeling, and decision-making. The key to powerful AI is powerful data, and Coupa owns the largest private B2B commerce data set in the world.
Coupa AI can analyze this data to predict trends and provide actionable insights to improve supply chain resilience for our customers, such as opportunities to optimize inventory levels or prioritize top-performing suppliers.
AI can also spot real-world risks so companies can proactively manage disruptions by identifying alternative shipping carriers or adjusting production schedules.
AI is baked into our Supply Chain Design and Planning solutions, powering insightful forecasting and scenario testing. Supply Chain Prescriptions apply AI to see beyond your supply chain planners’ purview to identify savings opportunities through prescriptive analytics, diagnose root causes of disruptions or inefficiencies, and generate faster, better scenario planning to drive measurable business value.
By continuously refining supply chain models with real-time data and AI-driven insights, Coupa customers can run experiments using flexible models that dynamically and automatically account for changes like adding a new node, product, or plant and can even suggest optimizations.
An intuitive interface and user-friendly integrations (available through the App Studio for Supply Chain Design and Planning) democratize access to AI and resilience planning tools.
Bolster your supply chain resilience
By implementing modern strategies like continuous design, AI-driven insights, and the use of a digital twin to model real-world scenarios, companies can build resilient supply chains capable of withstanding the pressures and disruptions of complex markets. Investing in the right intelligent spend management tools makes implementing those strategies easier — even in an always-changing world.
