Resilience has emerged as the key indicator of long-term supply chain success. The current supply chain landscape is defined by geopolitical disruptions, extreme weather events, and economic pressures. Unpredictable consumer demand, rising cybercrime, and tightening regulatory restrictions are also stressing global supply chains already battered by COVID-19.
“It is widely accepted that unexpected events and disruptions are intrinsically an integral part of SCNs, which have become increasingly interconnected, interdependent, and complex due to globalisation,” noted the authors of an article published in the Journal of Computers & Industrial Engineering last year.
They add that this complexity and interdependency between organisations in a supply chain renders the structure less resilient. Furthermore, disruptions affecting one point in the chain are more likely to affect the rest of it too. Disruption of a fragile supply chain can result in “decreasing sales, delays in distribution, damage to market share and reputation, and declines in stock returns”. In short, the damage can go well beyond the initial disruption.
Resilience is becoming an increasingly prized characteristic of modern supply chains. As such, we’ve identified three ways supply chain managers can increase the resilience of their operations.
1. Diversify your supplier ecosystem
Climate-related disruptions and geopolitical crises are affecting more of the world. As a result, sourcing all of a certain product or resource from a single supplier in a single region can render your whole supply chain vulnerable to disruption. If all your raw materials come from a single supplier, country, or region, your supply chain is vulnerable. Whether a war breaks out, a government changes hand, or drought wipes out crops, you are at the mercy of that area’s fortunes. In short, don’t put all your eggs in one basket.
A diversified supplier ecosystem that deals with multiple suppliers, both overseas and locally, is significantly less likely to be disrupted. You can further increase resilience by signing dual-source agreements and longer-term contracts. Many organisations are also considering nearshoring and friend-shoring key elements of their supply chains where possible. Sometimes it’s worth paying more for the stability of being closer to home.
2. Take a more conservative approach to inventory management
The days of just-in-time fulfilment and inventory management have been replaced by insecurity and long lead times. Even Toyota Motors—the company widely regarded as having invented the just-in-time methodology—increased its inventory of semiconductors from a three to five month supply amid the shortages last year.
Safety stock buffers can be augmented by AI analytics. These tools can effectively manage inventory replenishment by taking into account multiple internal and external business factors. Of course, there is still a risk incurred by holding onto too much stock, as it prevents you from adapting to new challenges as quickly as you might if your operations were more agile. If disruptions do occur, short-term pressure valves can be used to get stock where you need it quickly. This is similar to a backup power supply at a critical building when the grid fails. While a form of rapid response transportation solutions like air freight can avoid a major disruption in the short term, overreliance on these methods can create pain points of their own.
3. Practice diversity in your logistics network
The movement of raw materials, manufacturing parts, and finished products all takes place outside your direct control. Shipping routes are especially prone to disruption, as demonstrated by ongoing delays in the drought-stricken Panama Canal and Houthi military action in the Red Sea. These two unrelated events in tandem effectively doubled the price of container shipping in Q4 2023. By getting what you need from a wider array of locations, you can minimise or even avoid this kind of risk. Obviously, it’s impossible to completely mitigate risk, especially when the threats to your operations are global. Nonetheless, if you are being disrupted less on average compared to your competitors, it’s going to create an advantage.
By mapping out alternative routes and using multi-modal transportation, supply chains can increase resilience and reduce costs. Switching from rail to road, or from sea to air, for example, can increase your supply chain’s resilience. Lastly, by outsourcing fulfilment to a third party, you can also help scale operations up or down as necessary, which can be especially valuable in a market defined by unpredictable customer demand.
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- Risk & Resilience
