During these times of relatively calm markets and few supply chain disruptions, it’s tempting to rest on our laurels and put supply chain resilience on the backburner. But we must not become complacent. The risk of supply chain disruptions is always there, and supply chain resilience is what will prepare you to operate through and recover from the next challenge. Moreover, being able to recover better than others in your industry gives you a competitive advantage. Following are six ways to enhance your supply chain resilience and build your competitive advantage.
1. Learn from your risk experiences.
There is no doubt your supply chain has seen its fair share of supply chain disruptions in the past few years. If you haven’t yet taken good notes about the disruptions and your company’s responses, take some time to reflect on these experiences. Ask some basic but important questions:
- When did we first know about the disruptions?
- 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 should guide your forecasting process, contingency plans and supply chain resilience playbook. These plans should be refined after each risk event to add more lessons learned.
2. Remember risk variety.
Notice that I said plans. Supply chain resilience plans are not a one-size-fits-all situation, so you will need a variety of different disruption-response plans. Your response to one type of disruption could be completely different from the necessary response to another type of disruption.
For example, you might purchase backup generators to power machines during a weather-related disruption, maintain buffer stock to give you extra lead time in the event of a supplier disruption, and build relationships with a partner who can make components for you on an emergency basis if your equipment breaks down.
3. Create supply chain visibility.
It’s easier to effectively respond to supply chain disruptions when you can see them coming. In some cases, a disruption will hit one of your suppliers first, and in turn the disruption could hit you before it hits your customers. Unless a single party can effectively mitigate a disruption alone, it will have ripple effects through the supply chain. Therefore, it’s in everybody’s best interest to invest in 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. Technology like predictive analytics; artificial intelligence and machine learning; and the internet of things, big data and advanced analytics — which can all be rolled into supply chain visibility software packages — can monitor markets, track assets, analyze patterns and more. Then, when all supply chain partners are connected on the same platform, they can all have access to the same information to support each other and prepare their own operations.
But achieving this requires an old-fashioned method of supply chain visibility: building relationships with and staying in touch with your supply chain partners. By knowing each supplier intimately from meetings and regular communication, you can better monitor them to detect potential problems and support your partner through the disruption to create better outcomes for all. Also, if your partners trust you, they will be more likely to collaborate on a supply chain visibility platform to give the key stakeholders the insights needed to identify risks and stop them in their tracks.
4. Source strategically.
Effective sourcing requires some newer practices. The recently popular sourcing strategy of offshoring has become less advantageous as multiple kinds of disruptions weaken lengthy supply chains. Instead, companies are focusing on regionalization, or sourcing raw materials and finished parts from locations closer to where the final product is being made or sold. Still, offshore partners are an integral part of supply chain resilience, especially so that they can support global operations when a disruption hits a part of the supply chain. Plus, offshore partners typically offer cost savings, which helps a business save for other disruption costs. The task of a sourcing and procurement specialist is to find the right mix of global and local sourcing to achieve supply chain resilience.
One critical strategy is to avoid single sourcing as much as possible. One single source equals one critical point of failure that can bring the supply chain to its knees. Instead, you should diversify sources and asset carriers to mitigate production risk and boost resilience. Taking this a step further, you also should avoid having your suppliers based in a single region or even country because a disruption could affect all of them at once. At the very least, you need a plan to quickly switch to an international supplier in case 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.
5. Prepare your whole supply chain for a disaster response.
A supply chain is only as strong as its weakest link. Therefore, supply chain resilience should be a supply chain effort.
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 operations when disaster strikes. Consider also adding a third-party logistics partner that can serve as a safety net in areas where you fall short during a disruption.
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.
6. Stay agile.
Tying this all together, supply chains need to leverage all of these supply chain resilience components to respond to disruptions with agility.
The top procurement organizations operate with a 360-degree mindset. They leverage their visibility and 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. This gives them the competitive advantage.
Supply chain resilience leaders also analyze the variety of risks that could affect them and then take steps to mitigate them. For example, manufacturers can anticipate average parts lifespans and take action to mitigate the impacts of parts failure. In addition, they can monitor leading indicators of a vendor’s ability to make payments to anticipate the risk of default.
When resilient companies know a disruption is coming, they can get ahead of it to prevent or mitigate it and keep their operations running. This can also be the time to switch to an alternate sourcing partner or enact a disruption plan within their supply chain.
Bonus step: Reap the benefits of resilience
Those companies that lead at supply chain resilience lead the market. During crisis quarters, companies that have focused on resilience double their lead over competitors who have not made supply chain resilience a priority.
In addition, the focus on supply chain resilience can have ancillary benefits for businesses. These include improving production output, cutting product development timelines, increasing perfect order rate, cutting operating expenses, reducing transportation costs, increasing inventory turnover and boosting customer satisfaction. And these improvements make a huge difference when it comes to competitive advantage.
There are few excuses not to invest in supply chain resilience. Some companies hesitate because of increased costs, but they tend to forget the costs of maintaining the status quo, dealing with yet another disruption and missing out on competitive advantages. By proactively instituting processes and mitigating risk, your organization will have the supply chain resilience and competitive advantage when trouble inevitably occurs.
Develop the knowledge and skills to build supply chain resilience with the soon-to-be-released ASCM Supply Chain Resilience Certificate.
