Resilience and Risk Management in the Modern Supply Chain
Running a business is a naturally risky proposition. Though many aspects of the marketplace will inevitably remain beyond control, the one thing that can be controlled is the reduction of exposure to risk within various areas of an operation, including the supply chain.
Effective supply chain risk management programs recognise things will not always go according to plan and help build a more resilient business in response. This involves assessing current risk factors and developing strategies to manage them.
The risks of supply chain disruptions, to both revenue and reputation, are not limited to first-tier suppliers and customers. The ability to access information from every part of the trading network in real-time can help businesses identify and anticipate risks, as well as inform the range of decisions needed to mitigate them.
That visibility fuels the approach behind collaborative planning and execution; bringing together all the people, processes and technologies to identify and resolve supply chain disruptions before negative impacts take hold.
Knowing all possible sources of risk will allow businesses to ask the right questions and be better prepared for the unexpected. The following are three ways a company can improve its risk management capabilities and trading partner network.
Right Level of Visibility
The most successful programs are designed to function end-to-end- all the way from supplier constraints to customer demands. It is critical to have complete visibility across all data at multiple tiers of the supply chain.
Partial visibility will give just that: a partial view of the problem, often requiring manual intervention to pull second-tier and third-tier information together. When resolving problems, many companies waste more than half of their time correlating the timing and quality of external data sources. By the time that monumental task is complete, it’s likely that the problem has already changed.
With profits and customer satisfaction hanging in the balance, companies can’t afford to waste much time resolving parts shortages, logistics disruptions, or changes in demand.
With the right technologies, expertise, and a commitment from senior management in place, businesses can reap the full benefits of outsourcing and globalization, as they can see the “big picture.”
Enable Real-Time Collaboration
Once visibility is established, the next step involves external collaboration. Without collaborative capabilities, companies are forced to depend on contingency plans in isolation from their key suppliers and distributors.
In the event of large-scale shutdowns or inventory losses, the ability to know sooner and collaborate in real-time will enable a company to switch among alternate suppliers and match short-term demands with order information. This strategic timing advantage is what squarely puts a business ahead of the competition, as that organisation can more adeptly change course armed with better information.
Whether it is a flood, tornado, or a sudden dip in demand, macro-environmental variables constantly threaten the integrity of supply chains. Real-time visibility and collaboration across the global trading network will put a company in the best position possible to detect and resolve disruptions based on the most current, complete information.
Collaborative Planning for Smarter Resolutions
When one part of the supply chain is disrupted, the negative effects can ripple across an entire trading network. To minimise the impact of such a disruption, it is critical to identify and resolve exceptions before profitability or service levels are compromised, which takes real effort and advance planning.
Because supply chain disruptions cannot always be predicted or prevented, preemptive measures are needed. Collaborative planning and execution allows businesses to resolve supply chain disruptions with the collective intelligence and reach of their entire trading network. This unified view will allow to expedite, transfer, or re-route existing assets to wherever the current demand exists.
While some risks are unavoidable, they can be intelligently managed with the help of the right technologies and information systems. Today’s risk management tools are enabling responses to real problems and providing an information and communication platform to manage situations as they happen.
However, in today’s complex world of outsourced manufacturing, traditional planning tools simply aren’t up to the challenge. For optimal control within an extended trading network, multi-enterprise solutions with access to data across the network are critical to future success.
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”