Top 5 Ways to Build Supply Chain Resiliency
Supply chain disruptions come in many shapes and sizes and will test your supply chain resilience. Unpredictable and costly, they can occur as the result of many different events — from hurricanes, a polar vortex, to most recently, a global pandemic.
These disruptions are certain to happen again in the future, when the market shifts. Shippers and brokers must proactively mitigate structural risk and build supply chain resilience in order to survive and thrive.
In fact: Only 21% of companies have done the necessary work to build supply chain resilience in their networks, according to Gartner. This includes visibility and the agility to shift sourcing, manufacturing, and distribution activities rapidly.
As the country emerges from the current health crisis, we expect many companies to prioritize increasing supply chain resilience. To illustrate, more than half of the respondents to Gartner’s survey indicated they would be highly resilient in two to three years.
“Most supply chain leaders recognize that becoming more resilient is a necessity in the current environment,” said Geraint John, VP Analyst at Gartner. “However, measures such as alternative factories, dual sourcing and more generous safety stocks go against the well-versed philosophy of lean supply chains that has prevailed in recent decades.”
What Is Supply Chain Resilience?
The definition of resilience in physical science is the ability of a substance to recover its original shape following a deformity. In business, resilience extends to the agility of a company to prosper through significant disruptions, including the time it takes to return to typical performance levels.
Supply chain resilience isn’t just about successfully managing risk in the supply chain. It includes the ability to manage risk better than competitors. In fact, the most resilient companies will have a competitive advantage from disruptions that impact an entire industry.
The rebalancing of efficiency and resiliency is not easy. The majority of the time, increased supply chain resilience comes with additional costs. What’s often not factored in, however, is the significant cost of maintaining the status quo. As a result, supply chain executives must pursue strategies to build supply chain resilience into their networks.
Top 5 Ways to Build Supply Chain Resilience
Companies can build supply chain resilience in many ways. Let’s go into the top five ways below. These are the essential building blocks to recover from a supply chain disruption.
1. Create Supply Chain Visibility
There will always be unanticipated events, however, the leading companies establish processes with learning cycles. When disruptive events do occur, these companies complete a retrospective where they ask questions such as:
“When did we first know?”
“When 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?”
Answers to these questions can be used to establish a new forecasting process, contingency plans, and response playbooks.
It’s important to recognize the structural risk across your supply portfolio. What’s more: Shippers should establish clear playbooks on when and how to respond to a wide range of risk events.
Good leaders categorize the likelihood and impact of risk associated with each piece of their supply chain. The goal is to identify four types of risk:
Moderate risk events
Black swan events
Talk about today’s supply chain, and you’ll undoubtedly bring up visibility. This hot-button issue has pushed supply chain visibility to the forefront of technology, boosting visibility companies such as Project 44 and FourKites to household names.
Visibility tools such as these can eliminate data silos and bottlenecks, and building tracking capabilities and machine learning insights into your supply chain are now possible. However, it’s not enough to just have visibility. It’s how you use it that counts. Visibility enables you to build supply chain resilience so that you can identify risks and stop them in their tracks.
2. Develop a Strategic Sourcing Strategy
Take a close look at your strategic sourcing strategy. You’ll want to 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 base of operations. However, they can still benefit from acquiring raw materials overseas for certain commodity products. What is the right mix between global and local sourcing for your supply chain? Understand the right balance for your organization to achieve resiliency.
Diversifying sources and asset carriers is a critical starting point in mitigating production risk. However, the majority of companies survive with high percentages of their supply chain portfolios through a single juncture of failure.
Shippers should reduce their reliance on sourcing from any particular country, region or supplier. You can avoid disruptive transportation situations by creating a process to rapidly find and develop relationships with alternate asset carriers.
To put it in perspective, 10 years ago, the tsunami in Tohoku, Japan sent a shockwave through the automotive industry. The high concentration of accessories and parts manufacturers in one country in Asia had been overlooked as a risk.
An easy but effective tactic is combining offshore and near-shore suppliers for each raw material. For an even more robust strategy, you can develop regional supply chains that manage and distribute products within one area and provide redundancy. So, if one location is disrupted, vendors and partners from other regions will step in. In short, diversification reduces risk.
3. Plan Your Disaster Response
Weather events are now an annual occurrence. We can’t prevent these events, but we can plan our 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 not only strengthen your working relationship but also prevent them from bailing out of convenience.
Make sure that your employees are well versed in company protocol for adverse weather conditions and that you have the physical infrastructure in place to keep operations flowing smoothly, even while the disaster occurs. Even if your operations are based in a location that doesn’t have “scheduled” weather events (hurricanes, tornados, wildfires) it pays to have a contingency plan and the appropriate infrastructure in place.
Additionally, having a 3PL partner can make a considerable difference in your planning process. They can serve as a safety net in areas where you fall short during catastrophic weather events. Preparation and planning will only go so far when the weather turns ugly, but every additional measure counts.
Fine-tune your disaster response plan. Even if your previous response plan was poor, take the lessons you learned and use them to strengthen your action plan.
As Albert Wright, UPS global engineering manager, once said, “Disruptions are really normal.” It’s why UPS tests its recovery processes daily. Resilient and flexible organizations are conditioned to become innovative and flexible in the face of supply chain disruptions.
4. 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 their impact. 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 instance, obsolescence or bankruptcy of a single vendor within a dual-sourced component will cause a risky supply chain situation.
In today’s supply chain, companies should anticipate postponements rather than be caught by delays. Manufacturers can design processes or products in ways that interruptions of operations and decisions have as small an impact as possible in the supply chain.
For example, they can keep products in a semi-finished form. This tactic affords flexibility to move products from unimpacted to impacted areas when necessary. This 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.
For example, Italian fashion company Benetton overhauled its manufacturing processes so certain products were made as generic, undyed items to be completed later. This process allowed them to finish and assemble the final articles when the company obtained more reliable sales data from retailers.
5. Utilize a Capacity or Procurement Platform
The final component to building supply chain resilience is to align your procurement strategy with asset carrier relationships. If a company relies on a small group of key carriers, it must maintain a deep relationship with each.
Understandably, asset carriers are so vital to a shipper that delivery failures can have a catastrophic effect on that enterprise. By knowing each trucking company intimately, shippers and brokers can better monitor the group to detect potential problems. Moreover, stronger relationships allow shippers and brokers to troubleshoot and collaborate with carriers when unforeseen circumstances occur.
Alternatively, if a company is not closely allied with a group of carriers, an extensive network is required for supply chain resilience and to be responsive to the market. Maintaining a large network of asset carriers distributes the risk should a failure occur. A company with shallow relationships is less knowledgeable about its trading partners and therefore are less likely to be forewarned about supply chain issues
Neither strategy is necessarily foolproof. However, the goal is to choose the approach that aligns supplier relationships with truckload capacity and procurement strategy.
Software now exists that can assist brokers and shippers with their truckload procurement. Companies like FreightFriend provide solutions to match the right capacity with the right freight. Shipper and freight broker transportation management software like McLeod PowerBroker or Shipwell help with digital execution.
Technology solutions in the market are helping to level the playing field for small to mid-size shippers and brokers to compete with the top 10.
If supply chain resiliency is important to your organization, following these five steps will help you identify weaknesses in your supply chain and create contingency plans. By proactively instituting processes and mitigating risk, your organization will have the competitive advantage when disruptions inevitably occur.