To call 2020 a difficult year would be an understatement. The world experienced its first pandemic in more than a century, with COVID-19 infecting 100 million and killing more than 2 million people. The global climate crisis continued to wreak havoc, including wildfires in Australia and California; one of the most active Atlantic hurricane seasons on record; and flash floods, earthquakes and tsunamis across the globe. Social unrest, largely due to a reckoning about race relations in the United States, evolved from peaceful protests, riots and government-imposed curfews to a profound introspection of systemic racism. Meanwhile, international relations among many countries weakened: The U.K. officially left the European Union; trade wars led to an increasing number of tariffs; and a heated U.S. presidential election ended with the outgoing president questioning a free and fair vote, opening the door for adversaries to follow his lead.
Supply chains experienced every one of these moments. When news first spread of the novel coronavirus, people stocked up on cleaning supplies and beans, leaving store shelves empty and creating a panic among shoppers. The natural disasters caused blackouts and road closures, halting manufacturing and impeding logistics and distribution. The acknowledgment of systemic racism and oppression led many businesses to re-evaluate their suppliers and leadership. And Brexit continues to complicate trade relationships, slowing operations and forcing infrastructure modifications.
If there was ever a time for a silver lining, it’s now. Supply chains have a unique and important opportunity to learn from the shocks of 2020, as well as how resilient organizations faced these rolling disasters.
Late last year, ASCM collaborated with The Economist Intelligence Unit (EIU) to create a benchmark for companies to gauge the health of their supply chains and identify best practices for building resilience. Together, we assessed the prevalence of modern supply chain resilience-building capabilities and evaluated the supply chains of 308 publicly traded companies based on primary survey data, data from corporate disclosures and expert interviews. It’s the first initiative of its kind and one that is invaluable for supply chain managers seeking to understand the urgency of building resilience right now.
The benchmark measures two areas of supply chain resilience:
- Operational resilience, which describes an organization’s ability to anticipate, withstand and respond to supply chain shocks effectively and return to a baseline normal. This type of resilience has been the gold standard in years past. However, the pending disasters of the modern era require a second approach, as well.
- Strategic supply chain resilience focuses on how companies prepare for long-term risk and structural shifts by adapting to new environments, building stronger partnerships, and adopting sustainable and circular practices.
For years, and especially since the Great Recession, supply chains have been working to build up operational resilience. “Historically, supply chain managers have predominantly focused on readying themselves for short-term conceivable shocks and adjusting back to a business-as-usual scenario,” the report states.
But the shocks the industry is facing are no longer simply recessions and natural disasters. And business-as-usual is no longer a reachable standard; nor will it sustain a business. The paradigm of the past — leanness, efficiency and cost control — is inadequate to prepare an organization from the unforeseen, yet inevitable. After all, lean manufacturing left store shelves empty for months.
Furthermore, the crises the world will experience in the future are likely to be even more perilous: Climate change is intensifying natural disasters, globalization enables viruses to cross the world quickly and brutally, and systemic racism can’t be solved with workplace diversity programs. Supply chains must do more. We must anticipate the types of structural changes that forever alter the business landscape. And, as the report urges, we must “combine operational resilience with a longer-term strategic perspective.”
Building strategic resilience
Without a focus on resilience, supply chains will never survive the next disaster, whatever that may be. The benchmark cites three key tactics for building strategic resilience, based on the companies examined:
1. Collaborate deeply with suppliers. Successful supply chains focused on building partnerships, sharing best practices, long-term planning and providing financial assistance when necessary. “Maintaining the financial health of the supply chain can position companies to bounce back when economic conditions improve,” the report explains.
2. Reduce scope 3 carbon emissions. Making supply chains more socially and environmentally sustainable is the number-one way that companies plan to build resilience in the coming years. However, the report notes that they aren’t doing enough. Less than half survey respondents have set targets to reduce emissions, and few had data to report on their efforts. However, the experts agree that climate change is the next major challenge, and the need to build climate-focused policy is urgent.
3. Increase end-to-end visibility. Only about half of the companies studied have adequate data on their suppliers, and many rely on a picture of supply and demand that’s not based in numbers. Organizations aren’t using the same technology or planning functions as their supply chain organizations, and, as a result, struggle to anticipate disruptions.
However, it’s not all bad news. The benchmark also concluded that large consumer electronics companies were already successful at sensing disruption, a strong indicator of resilience. Many of these businesses rely on data from weather analysis, social media trends and supplier audits, among other approaches, to anticipate the unpredictable. Plus, industry research continues to show a growing connection between sustainability and resilience in the supply chain across industries. For example, environmental, social and corporate governance stocks outperformed during the pandemic; accordingly, investor interest in their performance increased.
In addition, diversity of leadership and the workforce creates an equitable environment for growth and leads to a more personal investment in a company. There is an increasing connection between social justice initiatives and profit margin. In fact, a majority of Americans of all generations — 60% of the U.S. population — say that how a brand responds to racial justice protests influences whether they buy or boycott.
Supply chain organizations don’t just have an incentive to build resilience; they have a mandate. And now with this benchmark, they have the necessary knowledge and tools to make it happen.