True supply chain resilience is about more than just successfully managing risk; it’s also about managing risk better than your competitors. In fact, the most resilient companies make resilience a competitive advantage. Here are five ways to achieve this goal.
1. Learn from the risks you have already encountered. There will always be unanticipated events that cause disruption. Rather than just licking their wounds, leading companies learn from these events. Company leaders do so by asking themselves some basic but important questions:
- When did we first know?
- How could we have known sooner?
- What could we do in the future to anticipate such events?
- What actions can we take to mitigate the impacts in the future?
The answers can be used to establish a new forecasting process, contingency plans and response playbooks. Generally, there are four key types of risk to be identified: routine disruptions, moderate-risk events, black-swan events and structural flaws. Once you’ve identified what you’re facing, establish clear plans about how to respond to each type of risk event. And even when playbooks are written, continue refining them after each adverse event to make your plan even stronger.
2. Create supply chain visibility. High-tech supply chain visibility tools can eliminate data silos and bottlenecks and make it possible to build tracking capabilities and machine-learning insights into your supply chain. But visibility can also come from just some good old-fashioned staying in touch with your partners. By knowing each supplier intimately, you can better monitor them to detect potential problems. Moreover, stronger relationships allow shippers and brokers to troubleshoot and collaborate with carriers when unforeseen circumstances occur. However, it’s not enough to just have visibility; it’s how you use it that counts. Leverage the knowledge you have to identify risks and stop them in their tracks.
3. Develop a strategic sourcing strategy. Take a close look at your strategic sourcing strategy. Learn about your supply chain partners and analyze your specific needs, in case you need to develop a more balanced portfolio strategy. For example, some corporations are moving sourcing closer to their bases of operations. However, they still can benefit from acquiring raw materials for certain commodity products from overseas. Consider what is the right mix between global and local sourcing for your supply chain to achieve resilience.
Diversifying sources and asset carriers is a critical starting point in mitigating production risk and boosting resilience. Many companies source or move a large portion of their supply chain portfolios through a single point of failure, but this is a huge risk. Instead, avoid relying on sourcing from any one particular country, region or supplier and create a diverse portfolio of suppliers. Or, at the very least, have a plan in place to quickly switch to an alternate supplier in the event of disruption. An easy but effective tactic is combining offshore and nearshore suppliers for each raw material. For an even more robust strategy, develop regional supply chains that manage and distribute products within one area and provide redundancy. Then, if one location is disrupted, vendors and partners from other regions will step in.
4. Prepare your whole supply chain for a disaster response. Weather events are an annual occurrence. You can’t prevent them, but you can plan your response. Even if a black-swan weather event occurs outside of your operational range, you can almost certainly expect repercussions and disruptions to your own supply chain. Preparation is critical to minimizing the disruption and keeping operations flowing as smoothly as possible.
Work with your supply chain partners and make sure they understand your disruption prevention plans. This will strengthen your working relationship and enable them to better support your operation when disaster strikes. Similarly, make sure your employees are well versed in your company’s protocols and have the physical infrastructure in place to keep operations flowing smoothly during and after the disaster. Even if your region does not routinely have adverse weather events, it pays to have a contingency plan and the appropriate infrastructure in place in case disaster strikes.
Additionally, having a third-party logistics (3PL) partner can make a considerable difference in your planning process. The 3PL partner can serve as a safety net in areas where you fall short during catastrophic weather events.
5. Stay agile. To build supply chain resilience, organizations must sense, predict and respond with agility. The top procurement organizations operate with a 360-degree mindset. They are aware of market trends for their customers, vendors, products and carriers as well as new technology trends. They ingest various sources of data, anticipate threats and opportunities, and deploy preventative measures far ahead of their competitors.
For example, manufacturers can anticipate average parts lifespans and take action to mitigate the impact of parts failure. In addition, they can monitor leading indicators of a vendor’s ability to make payments to anticipate the risk of default.
Organizations also must be aware of single instances that create a butterfly effect of other risks. For example, obsolescence or bankruptcy of a single vendor within a dual-sourced component will cause a risky supply chain situation.
In today’s market, companies also should anticipate postponements rather than being caught by delays. Manufacturers can design their processes or products in ways that minimize impacts when operations interruptions occur. In general, this tactic affords flexibility to move products from unimpacted to impacted areas when necessary. It also improves customer service and increases fill rates. Both are achieved without an increase in inventory carrying costs, and the final assembly can be completed when better data becomes available.
Invest in supply chain resilience
There are few excuses not to invest in supply chain resilience. Some companies hesitate because of increased costs, but they tend to forget the cost of maintaining the status quo and dealing with yet another disruption. By proactively instituting processes and mitigating risk, your organization will have the competitive advantage when trouble inevitably occurs.
The Economist Intelligence Unit, sponsored by ASCM, has developed a benchmark that assesses both the prevalence of modern supply chain resilience-building capabilities and how resilient companies have been over time. Learn more about The Resilient Supply Chain Benchmark.