Eliminating Supply Chain Risk During the Era of Disruption
Supply chains are increasingly exposed to a wide variety of risks, from natural disasters and geopolitical tensions to cyber threats and market volatility.
The COVID-19 pandemic served as a reminder of the vulnerabilities that exist within even the most robust supply chains, as companies worldwide faced unprecedented disruptions.
This, in conjunction with a host of other damaging events, has hammered home the need for risk management and resilience to become top priorities for organisations striving to safeguard operations and maintain continuity.
Building a resilient supply chain is no longer just about minimising costs or maximising efficiency – it is about preparing for and expecting the unexpected.
This undoubtedly requires a proactive approach to identifying risks, diversifying supply sources, leveraging technology and enhancing visibility throughout the supply network.
Digital tools, such as real-time data analytics, predictive modelling and IoT are already transforming how companies anticipate and mitigate potential disruptions.
The ability to adapt swiftly, respond effectively and recover rapidly from disruptions that do arise is what defines a resilient supply chain. As risks evolve, so too must the strategies employed to manage them.
The era of disruption
David Petrucci, Managing Director at global consulting firm Protiviti and leader of its Global Supply Chain and Operations practice, is knowledgeable about the disruptions which have hit businesses hard in recent years.
“In the wake of the COVID crisis, business seemed poised for strong and enduring recovery,” he explains. “A portion of that apparent recovery was due to pent-up demand and deferred investment and, as such, that portion helped accelerate economic activity – but only temporarily.
“While attempting to find its glide path, the economy and many corporate participants ran into a series of hurdles including creeping inflation, intervention in the form of increased interest rates, multiple geopolitical stability risks creating supply constraints and tariff risk, and of course a growing concern around government and consumer debt loads and service costs. The mood turned to caution outside of a few AI darlings.”
David and Protiviti forecast a number of headwinds over the next 12 months, with supply chains bearing the brunt of the associated challenges. They include:
Geopolitical risks will persist and continue to result in longer-than-average lead times for ocean freight
These longer lead times will present operational risk but also demand planning and inventory balancing risk against the backdrop of an increasingly strained consumer
Labour quality challenges will persist along with higher-than-average wage expectations, causing shift work challenges in manufacturing, operations and distribution
Delivery reliability.
Understanding the supply chain
During this ongoing era of disruption, the need for companies to gain a thorough understanding of their supply chains is arguably more important than ever.
This is especially the case given every supply chain is unique, requiring reconfiguration at different times for different reasons.
Joe McManus, VP Sales at Körber Supply Chain Software, a leader in end-to-end supply chain solutions, says it is “impossible” to make strategic pivots without obtaining a deep understanding of your supply chain.
Understanding is one thing; improving visibility and reliability are another.
In what is a volatile economic and geopolitical environment, the reality is that reaction times can make the difference between avoiding disruption and becoming the disrupted.
Further still, even better than having fast reaction times is the ability to prevent issues from arising.
“Supply chains that are well understood can be made more resilient by understanding bottlenecks and creating failover plans and redundancy of supply as needed,” David says.
“These and other preventative actions can create first-mover advantage in mitigating macro risks that impact multiple competitors and their supply bases simultaneously.”
Increasing resilience
So, how can businesses enhance supply chain resilience?
Joe’s belief is that, rather than simplifying supply chains, firms should embrace their complexity.
Naturally, he believes investing in new technologies is of paramount importance. Early detection systems, for example, can automate supply chain risk management and provide real-time supply chain visibility, helping businesses to quickly develop proactive responses to get ahead of disruptions.
Emerging tech like Gen AI should also be embraced in a bid to transform decision-making and operational efficiency with predictive analytics and automation.
Elsewhere, collaboration is increasingly perceived as being vital to resilience, as Joe explains: “Businesses looking to strengthen supply chain operations should consider prioritising partnerships, rather than competition.
“By collaborating with other companies, there will be an increase in real-time visibility, joint problem solving and relationship building across the entire supply chain.”
David references suppliers too, emphasising that understanding and tracking tier-n suppliers can help predict potential failure points among tier 1 suppliers, allowing for inventory buffers, ramping of alternate supply sources and even forward purchasing of raw materials on behalf of those tier 1 suppliers.
He adds: “Companies can improve resilience by seeking out alternate sources of supply, including leveraging nearshoring and friendshoring strategies.
“These same concepts can be applied to logistics capacity and network resilience as well as to labour availability and cross training throughout the supply chain.”
Then there is the consideration organisations such as retailers must have for changing customer expectations.
“Today’s customers are demanding more than ever,” states Joe. “One expectation accelerating supply chain complexity is post-purchase order changes, which could have significant impacts on warehouse operations and the supply chain.
“When companies understand and plan for these new expectations, it will enhance their overall resilience.”
Lean vs. agile
A prominent conversation in modern-day supply chain management is between ‘lean’ and ‘agile’ – two very different supply chain approaches.
The lean approach focuses on minimising waste and maximising efficiency. Those adopting it look to streamline operations, reduce costs and eliminate any non-value-adding activities.
Meanwhile, as its name suggests, the agile supply chain approach places emphasis on flexibility and responsiveness and is designed to enable firms to adapt quickly to changing market demands and external disruptions.
In a world dominated by unforeseen disruption, one might imagine an agile approach is the way forward, but David has a different take.
“Supply chains can be lean while also being resilient, but this requires strong visibility, coordination and orchestration of contributing suppliers,” he says. “In some cases, improved agility comes down to having accurate information faster and, as such, supply chain transparency is a critical contributor.
In other instances, the ability to pivot is largely based on the availability of alternate sources of supply to enable production continuity. Stockpiling inventory is rarely an effective strategy to improve resilience over anything longer than the very short term.
“In general, we’re seeing that customers are willing to pay for innovation that drives better reliability and visibility for their businesses.”
On the other hand, Joe maintains that agility is essential for businesses looking to strengthen their supply chain resilience.
He concludes: “For a truly resilient supply chain, firms need to strike the right balance between being strong enough to withstand unforeseen disruptions and flexible enough to adapt to changes swiftly.
“Achieving agility requires continuous improvements to supply chain processes, including constant evaluation and optimisation that will ensure supply chains can quickly adapt to unexpected changes.
“For example, labour markets continue to be very challenging, so adding people to accommodate growth or seasonal peaks is not always feasible. Solutions such as AMRs – to expand capacity – and gamification – encouraging workforce retention, recruitment and productivity – will continue to be key.”
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