What even is supply chain resilience?
You’ve probably heard of supply-chain resilience as one of the fancy keywords that have been around in recent years. What exactly does resilience mean?
The Oxford dictionary defines resilience as the capacity to recover quickly from difficulties, or the ability of a substance or object to spring back into shape.
In the context of supply chains this is the ability to recover from unforeseen challenges and risk events. A resilient supply chain can respond to risks and disruptions quickly and can recover from risks swiftly without large organizational impact by adapting or improving on its supply chain system.
Supply Chain risks can never be fully eliminated, therefore most businesses in any industry face these external risks to some degree. While they pose a considerable challenge, it can also be a chance to rise above the competition. When multiple players in an industry are impacted by the same risk, the ones with the most resilient supply chains can actually gain a competitive advantage.
One key learning resonated through the recent corona virus pandemic: supply chains were designed with cost optimisation in mind and were lacking the necessary resilience, leaving companies stranded and production lines abandoned if suppliers in far away places couldn’t deliver on their orders.
The risks affecting supply chains: resilience against what?
Supply chains are affected by a large number of internal and external risks. The following graphic shows the risks covered by Prewave and serves as an overview of all risks typically affecting modern supply chains:
The level of information along the supply-chain is typically limited to tier one suppliers. SCM departments usually form strong relationships with their top level suppliers and are generally aware of any incidents or risks affecting them. External risks on the other hand are typically unknown and can take any business by surprise. This is true for external risks of any tier along the supply network.
The really problematic risks are the ones affecting suppliers in the lower tiers. It is very unlikely that companies are aware of these risks or incidents. For example a fire at a tier 3 supplier might not even be communicated up the cascade and the company generally only finds out about it when some parts are delivered too late or missing entirely, giving them no time to react.
The 7 steps to supply chain resilience
Stock inventory and buffer capacities
It is safe to say that the first strategy for supply chain resilience, especially in light of the corona virus pandemic, will in most people’s minds be an increase in stock levels in order to safeguard the production against delayed or missing shipments. Seaports and other transport routes might shut down, manufacturing plants might have to close due to an outbreak, so the most straightforward way of dealing with these risks might be these types of inventory optimizations. Even though it appears to be a straightforward solution, it is hardly the most elegant approach since an increase in stock levels goes hand in hand with an increase in working capital and expenditure for storage capacities. As a consequence the increase in cost makes these measures all but easily justifiable to C-level executives.
An information advantage
What if supply chain risks and supply shortages could be predicted or would at least be known early enough to make adjustments to shipment schedules and supplier decisions? Companies that know early on if one of their suppliers is at risk of not delivering have the advantage of additional time to evaluate the situation and find alternative suppliers, need be. This time advantage can differentiate a successful business, which manages to reroute a shipment or find a new supplier, from one which fails to see the risk coming and has to take the hit in form of a production standstill, incurring massive losses in the process. But how can we get this level of information? On the one hand there are financial data providers like Dun & Bradstreet and similar SAAS which supply valuable first level data. Unfortunately it only shows the financial dimension, and also lags behind in time as financial data is only reported annually. The other solution is data providers such as Prewave, who can monitor suppliers in all languages throughout the internet and identify risks the very minute they become apparent. In some cases they can even predict risks ahead of time, giving companies the needed speed advantage to form an appropriate response.
Diversifying manufacturing networks
The textbook method of diversifying risk lies in the diversification of the manufacturing network. In finding new suppliers for the same parts the supply chain gains in resilience, if one supplier can not deliver, there will be a backup to fall back on. This method of multi sourcing is achieved by awarding business to multiple suppliers or even to sole suppliers with multiple production locations. The risk lies in increased prices, as order quantities have to be split between the suppliers diminishing economies of scale effects as well as increasing purchasing costs through additional supplier evaluation and onboarding.
Geographic dependence can be reduced by working with suppliers closer to the company’s own manufacturing plants. Logistical risks and impacts such as closure of sea ports and international trade limitations can be mitigated this way. Global supply chains should be optimized to mitigate the risk of long supply routes, in cases where the additional cost of sourcing locally outweighs doesn’t outweigh the advantages.
Product and platform standardization
The increase of variety in product portfolios goes hand in hand with an increase of complexity in the sourcing process. More products call for more individual parts, substantially increasing the risk of part shortages and in turn risking the production. One approach to combat the diversification of manufacturing parts is the usage of standardized components throughout multiple products. The automotive industry has been at the forefront of this development, with automotive platforms shared between various car models and even manufacturers.
Fostering partnerships and supply chain ecosystems
A strong foundation for a resilient supply chain is based on communication and collaboration with suppliers on all levels. Close partnerships translate to open communication of issues, risks and challenges which allow for collaborative efforts to avert risks and minimize impacts. The Prewave supply chain network makes a big leap toward a more transparent supplier network, by allowing suppliers to update and comment on any developments.
Strengthening resilience through organizational culture
Supply chain resilience and all the necessary steps along the way will only take hold if the organizational culture allows for, and moreover rewards resilient thinking.Therefore, supply chain resilience is just as much a management issue and has to be lived in an organization from the top down. Supply chain optimization processes have to be ingrained into the very DNA of an organization aiming for agile supply chains.
Supply chain resilience is increasingly at the forefront of issues that companies have to face in times of the corona crisis and going forward. It is a multifaceted beast that is yet to be tamed but companies are advancing in building truly resilient supply chains can rest assured to have the competitive edge to take on any crisis. We at Prewave can offer an invaluable tool to increase supply chain visibility and avert risks before they happen, so you can be sure that nothing in your supply chain goes unnoticed. Get started with our service for free and monitor your suppliers.