It has been a lot of talk about the importance of supply chain resilience so far in 2020. But have you ever wondered what it actually means?
Supply chain resilience is a supply chain's ability to be prepared for unexpected risk events. If you have a resilient supply chain, you can manage to respond and recover quickly to these disruptions by returning to the original situation or by moving to a new, more desirable state in order to increase customer service, market share and financial performance.
The world faces a unique, complex challenge that’s disrupting our lives, businesses, and confidence. But it’s the companies that can find their legs within these rough seas that can also emerge stronger.
As supply chains struggle with new demand patterns, supply constraints, and logistical challenges, you can use lessons learned to kickstart transformation and build resilience.
“The coronavirus pandemic has demonstrated to governments – yet again – how supply chains are vulnerable to far-away events in far-away places. Going forward, businesses can expect both regulatory and social pressure to ensure that they are more resilient to such shocks, with stocks maintained of critical products.” Stephan Freichel – Professor of Distribution Logistics at Köln University of Applied Sciences
“We are moving from an era marked by an emphasis on procurement for cost, to an era marked by an emphasis on procurement for resilience.” Richard Wilding – Professor of Supply Chain Strategy, Cranfield School of Management
Adopting emerging technologies
Emerging technologies offer organisations another route to strengthening their supply chains and maintaining a level of continuity during times such as these. The technology learned about the traffic restrictions in various places, and regularly collected information from local managers to understand and build a picture of how many workers were most likely to be available at any given time and place. It then shifted production capacity in response to changing conditions.
The ability to utilise public cloud platforms to quickly ‘spin up’ environments that can host mission critical applications, e.g. track & trace, social distancing and geo-fencing apps, will be a key factor in enabling individual businesses to survive. If this is done in a co-ordinated manner up and down the supply chain, it could preserve the competitiveness and future existence of the constituent parts of that supply chain. Finally, organisations could consider deploying autonomous trucks and drones for intralogistics and last-mile delivery challenges. This can help support businesses struggling with a reduced workforce.
Looking ahead to business bounce-back
As the spread of Coronavirus decelerates and lockdowns are eased, customer demand will no doubt pick up and businesses must prepare for an agile approach that flexes to the evolving situation will be critical. As we sit and wait, sales and operations planning professionals should be starting to build a picture of future consumer demand by stimulating several recovery scenarios before finalising production and logistics decisions.
Organisations can estimate demand recovery in the short-term, while also developing new forecast models based on the latest customer sales and market data. The system tracks each product’s supply chain back to base elements from the suppliers’ suppliers and flags any potential supply disruption. On top of this, organisations should also ramp up operations recovery and prepare themselves for a full restart. This means creating new production plans and beginning to evaluate priorities and potential bottlenecks.
Building buffer stock can also help organisations to get ahead and will be particularly important for complex parts that require collaboration with multiple suppliers. This will be a direct challenge to the current financial modelling of investment in inventory and costs to serve the end customer.
Finally, organisations should begin diversifying their supply networks (by multi-sourcing from global or local suppliers or alternative sites of single suppliers) to avoid the risks associated with localised disruptions. Again, this could be a significant diversification from current supply chain strategy for many organisations who have built on the concept of supply chain partnerships and leveraging the ‘sole supplier’ relationships with key suppliers.
It’s not enough to address the short-term supply chain complications. Organisations must plan ahead for the next six months and rethink their supply chain strategies in order to absorb future risks.
Currently, most supply chain leaders are still in the reactive phase of how to deal with this pandemic. While the immediate focus is on maintaining supply and meeting customer need, organisations should also analyse the current pain points to plan for future disruptions throughout the rest of the year.
Enhancing immediate supply chain visibility, adopting emerging technologies to limit the severity of current disruptions, and rethinking supply chain strategies will not only protect businesses in the short-term, but set them up for longer-term success. Resilience is often thought of as an operational issue, focused on securing the supply from first-tier suppliers. In general, few organisations extend resiliency planning further upstream to their second- or third-tier suppliers.
Investment in digitalisation is one of the vital ingredients in improving supply chain resilience and flexibility. Digitalisation for supply chains is enabling transparency across the entire value chain. This means visibility all the way from product origin to the customer and product lifecycle. Alongside this data, the use of artificial intelligence is allowing businesses to spot relevant patterns and adopt a more proactive approach to managing risk.
Diversification and Collaboration
For smaller and medium sized enterprises, whose adoption of digitalisation and Industry 4.0 technologies is likely to be slower and phased, there are still plenty of sound ways to improve supply chain resilience. A sensible strategy would be to diversify supply, both in terms of company and location. SupplyTech Insights
Whatever the future looks like, supply chains must seize this opportunity to move from executors and a cost centre to a source of competitive advantage that unlocks operational margins. They must embrace connected planning with procurement and finance, making supply chain recommendations based on P&L outcomes that maximise working capital.
It’s time for supply chains to go on the offense to drive out complexity, harmonise plans and build agility.