Table of Contents
More Supply Chain Content
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Table of Contents
More Supply Chain Content
Get the latest e-commerce industry news, best practices, and product updates!
What is Supply Chain Resilience?
As the term suggests, supply chain resiliency is the supply chain’s capacity to recover and stay resistant to disruptions. Operational risks and interruptions pose severe threats to multiple areas of the supply chain. As witnessed towards the end of 2021, a global phenomenon like the COVID-19 pandemic can have far-reaching consequences on supply chain logistics, suppliers, and workforces.
The most resilient supply chains are built in line with the modern supply chain processes and technologies, enabling them to analyze, predict, and effectively respond to whatever changes and disruptions the future brings. Furthermore, a resilient supply chain minimizes the effects of upheavals in costs and revenues.
What are Supply Chain Disruptions?
Supply chain disruptions have become quite common in recent years, with companies across all industries experiencing disruptions on average every 3.7 years. The causes of supply chain disruptions include natural disasters, political unrest, or an unprecedented global pandemic such as COVID-19. Economic losses, job losses, and supply shortages are some of the direct consequences of supply chain disruptions.
The impact of supply chain disruptions is dire on a vulnerable population. Supply chain disruptions not only have a tendency to increase prices and create shortages among high-end consumer products, such as cars, but they also impact more-basic commodities, such as generic drugs or energy. Eventually, it increases the cost of living and the provision of basic needs.
Major supply chain disruption causes
- Cyber and security issues: Ransomware, and data theft
- Financial and company viability: Force Majeure, revenue outlook
- Geopolitical causes: Civil unrest, tariff hikes
- Artificial causes: Fires, and explosions
- Natural disasters: Extreme weather, earthquakes, etc.
- Reputational and compliance: Conflict of interest, sustainable procurement
Supply Chain Disruptions: Risks and Challenges
- Supply chains lacking global resilience are breaking down in the face of global, multifaceted disruptions.
- Supply chain management processes and operations have become more expensive, often representing a major portion of a company’s costs.
- The primary risk and challenge supply chain disruptions present is the inability to meet stakeholders’ needs and expectations.
- Lack of innovation and technology gaps across the supply chain process continue to create high dependency on the human workforce.
- Inflexibility and unadaptability limit the need for addressing customer demands for personalization.
- Over-reliance on mainstream, expensive, and inflexible technologies.
How to Respond to Supply Chain Disruptions?
Supply chain leaders can turn massive disruptions and complexities into a turning point toward significant change by taking the right actions at the right time and right place. However, it’s vital to analyze the financial and operational challenges facing your customers and suppliers while deciding on how to respond to supply chain disruptions.
- Mobilize the initial response plan and establish operating rules for responses related to supply chain disruptions and management of the same.
- Prioritize new risks, challenges, and implications of disruptions to all your supply chain components.
- Track and measure the impact of supply chain disruptions.
- Configure and tailor the supply chain network depending on the results obtained from the above analysis.
- Analyze scenarios when you might experience disruptions in the supply chain in the future.
How to Build More Secure, Resilient, Next-Gen Supply Chains?
Increased supply chain resilience often comes with additional costs. Moreover, complexities increase with a resilient and sustainable supply chain. However, we have compiled a list of strategies to help supply chain professionals build a more secure, resilient, and agile supply chain.
Vulnerabilities and redundancies in a supply chain
Identifying vulnerabilities and redundancies in the supply chain process is a crucial first step toward building a resilient supply chain. Potential vulnerabilities in a supply chain can include the following:
- Lack of transparency affects the visibility and traceability of the supply chain
- Relying too much on a particular supplier or distributor
- Too much reliance on suppliers in countries where trade wars might affect the pricing
- Not adapting to the changing supply chain technology and other tech digitization, such as AI
Conducting a risk assessment is essential for understanding your supply chain’s most significant vulnerabilities and redundancies. However, some redundancies are required in a supply chain, and thus, risk assessments enable you to understand how much redundancy you can tolerate.
Creating capacity buffers and inventory
Creating a buffer of safety stock is one of the most straightforward ways of maintaining supply chain resiliency. Buffer capacity can be in the form of underutilized production facilities or excess safety stock requirements. However, there is one major challenge buffer capacity presents: it is expensive.
Big brands use buffer capacity in the form of surge capacity for planning new product launches or tapping into new growth areas. Lastly, you can create buffer capacity by strategically using contract manufacturers for their surge requirements.
Flexible and digitization of the supply chain process
Manufacturers are able to withstand significant disruptions in the supply chain and are in a better position to adapt to demand fluctuations with more flexibility. Moreover, digitizing as many operational supply chain processes is one of the easiest ways to achieve supply chain resiliency across networks.
Despite several challenges involved, companies that digitize the supply chain process can witness significant benefits in the long run. Furthermore, digitizing operational processes can get companies real-time access to valuable data for making more informed decisions about production and expansions.
Relocating production closer to home or nearshoring, instead of offshore production can help manufacturers build supply chain resilience. If your supply chain is highly dependent on one location, the chances of disruption are higher. Furthermore, you should use multiple carriers to safeguard the transportation of products. While regional or local supply chains are more expensive since they bring more challenges to supply chain processes, nearshoring still allows for more control over inventory.
Diversifying inventory and suppliers
Stocking more inventory with limited sources might not be enough to mitigate the risk of significant disruptions. Manufacturers must diversify the suppliers they rely on to mitigate the supply chain risks.
Distributing inventory for maintaining supply chain resilience can also have the following benefits:
- It can expand your geographical reach.
- It reduces shipping costs for your business and customers.
- Diversifying inventory reduces shipping and fulfillment time.
Priority Actions for Building Supply Chain Resilience
- Firstly, put people first, including customers and suppliers.
- Leverage data to improve the company’s visibility into demand, supply, finance, and inventory.
- You should prioritize and analyze the demand and define micro-segments.
- Build a dedicated planning and execution team for effectively delivering responses.
- Lastly, you should evaluate what-if supply scenarios for predicting when and where a shortage might occur. It can also get you actionable insights for optimizing operational measures.
Supply Chain Gaps Introduced by the Pandemic
- A sudden shortage of raw materials and other components delays the work-in-progress phase. Eventually, it caused delays in manufacturing.
- The changes in product demand caused several stockouts.
- The pandemic resulted in many factories and warehouses shutting down, disrupting the fulfillment and distribution processes.
- Despite a sudden increase in online shopping, several merchants struggled to thrive in the ecosystem.
Supply Chain in a Changing World
Risk management is a never-ending supply chain management process, and it comes with its fair share of challenges. As big as the supply chain network, even a small disruption in any area can compromise the supply chain to significant disruptions. The more impactful changing global trends and phenomena are, the more widespread and significant are the disruptions in the supply chain.
KPMG lists six key trends that can impact the global supply chain in 2022:
- The ongoing major global logistics disruptions stemming from the pandemic shall continue to impact consumers and businesses.
- Delays in production and companies competing and struggling to get their hands on key raw materials.
- Too much reliance on a limited number of trading partners.
- An accelerated level of investment in supply chain technology.
- Poor transparency of how, when, and where companies spend.
- Lastly, labor market shortages both in terms of skills and numbers.
Global supply chain risks and market disruptions stand at an unprecedented high. The COVID-19 pandemic, being a significant factor in disrupting the supply chain, exposed gaps in the supply chains, already facing threats from the trade wars. Other prominent factors include a rapid chain in consumer behavior (also driven by the pandemic to a certain extent), highly unpredictable trade and political occurrences, and even climate change.
Consequently, manufacturers worldwide might experience greater competition and more significant political pressure to increase domestic production and reduce dependence on risky sources. Furthermore, manufacturers shall be pushed to rethink their manufacturing strategies involving minimizing inventory held with global supply chains.
How Does Supply Chain Resilience Work?
An effective supply chain management process is not only able to mitigate risks in multiple supply chain processes but also explore competitive advantage. It can be achieved through aligning supply chain resilience with disruption-avoidance strategies.
Synchronize all supply chain components
Creating a plan to synchronize all supply chain components can help you drive greater visibility and achieve an agile supply chain process. Furthermore, it helps you better understand demand and supply requirements, anticipate issues, limit the consequences of supply chain disruptions, and improve overall operations.
Understand the importance of leveraging valuable data
Artificial intelligence (AI), machine learning (ML), and modern databases procure and manage big data, among other digital supply chain technologies. Furthermore, you can analyze data in an almost infinite number of ways. It enables intelligent automation throughout the network and provides supply chain leaders with the real-time data they need to promptly respond to disruptions and future events.
Diversify supplying and manufacturing partners
Minimizing the number of supply and manufacturing partners in their network reduces operational and logistics complexities. The strategies heavily depend on social, political, and environmental stability globally.
Unforeseen upheavals in one area might hamper or shut down activities throughout the network. Moreover, supply chain professionals can supervise complicated trade partnerships and supplier contracts even at the farthest end of their network due to resilient supply chain technology like blockchain, sensors, and advanced analytics.
Incorporate inventory and capacity buffers
Profitability in the supply chain has long depended on reducing surplus and keeping inventories diversified. Creating a buffer stock of inventory can cost a lot of money and supply chain managers have often tried to keep costs low by avoiding maintaining capacity buffers. An unexpected disruption at a level caused by the pandemic showed how wrong companies have been.
Benefits of a Resilient Supply Chain
Let’s take a look at the many potential benefits of investing in diversification, supply chain technologies, and other resilient supply chain processes.
A resilient supply chain technology contributes to an overall increase in productivity across the network. According to a 2020 McKinsey & Company survey, supply chain leaders worldwide reported improved productivity due to supply chain resilience. Furthermore, 93% of those surveyed plan to make resilient supply chain processes a top investment in the coming years.
Efficient business processes
Greater supply chain resilience reduces risk and increases the ability to invest in innovations, technological advancements, and growth. According to Bain and Company, companies that prioritized investment in supply chain resilience had a 60% shorter product development cycle. Furthermore, companies were able to expand their output capacity by up to 25%.
Supply chains are complex by nature in functionalities, making them particularly vulnerable to global risks and disruptions. A resilient supply chain technology reduces the risk by increasing visibility into core operations across the supply chain. Furthermore, supply chain resilience enables businesses to optimize their logistics and processes in real-time.
Adaptive and flexible
A resilient supply chain management process can help you adjust the flow of products, depending on the changes you make to your distribution points. Eventually, it allows you to fully control your inventory and prepare for disruptions.
Real-time availability of data
Access to real-time inventory data is one of the most prominent benefits of a resilient supply chain management process, and it allows you to adapt to global constraints.
A More Resilient Supply Chain? You No Longer Have a Choice
Globalization has made maintaining supply chain resilience more complex. Another prominent factor that has made maintaining supply chain resilience more challenging includes eCommerce businesses growing ambitions of gaining more margins. Furthermore, moving production to low-wage countries has established complex global production networks. In good times, it can prove profitable. While it can be catastrophic during disruptions.
A Gartner study found that only a fifth of companies have a resilient supply chain network to respond to disruptions. Moreover, a 2020 McKinsey & Company survey reported supply chain management is top on the agenda of many companies. And, it’s no surprise, considering the often paralyzing effects of disruptions. Simply put, investing in building and maintaining supply chain resilience is no longer an option.
Supply Chain Resiliency: Best Practices
- Go through the multi-tiered supply chain network for identifying hidden risks, if any.
- Understand the consequences of relying too much on a single source for components and revenue contribution. Thus, finding alternate and multiple sources is one of the primary solutions to maintain supply chain resilience.
- Monitor your supplier base for potential financial and other risks.
- Tighten the cyber security protocols and prepare cyber security measures for potential threats and hacking.
The causes of supply chain disruptions cause upheavals in the supply chain network and define fundamental changes in consumer behavior—for example, the COVID-19 pandemic. If you plan for continued supply chain resilience, you might have to close collaborations with key business partners, including suppliers.
Furthermore, regular end-to-end assessment, monitoring, and optimization are key for businesses to quickly and confidently respond to supply chain disruptions. Supply chain resilience is important for creating effective supply chain strategies and ensuring the smooth functioning of the supply chain network.
However, the primary step is to closely analyze business requirements and prioritize supply chain processes.
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Supply chain resilience is the supply chain’s ability to prepare for, adapt, and respond to unexpected events and disruptions. A resilient supply chain quickly adjusts to sudden disruptions that might negatively impact the supply chain network performance.
There are several ways of making a supply chain resilient, including the following:
- Identifying vulnerabilities and redundancies
- Distributing inventories
- Diversifying suppliers
Creating a buffer stock
Supply chain resilience entails several benefits, including improved collaboration with suppliers, enhanced quality control, reduced inventory and overhead costs, increased risk mitigation, increased cash flow, and better visibility and transparency.
For building a resilient supply chain, you should focus on three primary phases of the supply chain: survive, recover, and rebuild.
There are four fundamental supply chain strategies, focusing on customer-centricity, predictive maintenance, automation, and visibility. If you incorporate these strategies, you can enable your business to meet customer demand and boost sales and profitability.