Sep 1, 2020

Six ways to create a more resilient supply chain

Supply Chain
resilience
covid-19
Sean Galea-Pace
3 min
Supply Chain Digital outlines six ways to foster a more robust supply chain
Supply Chain Digital outlines six ways to foster a more robust supply chain...

COVID-19 has drastically changed the way supply chains operate and highlighted how fragile they really are. With the landscape now completely different, supply chain leaders must balance cost and operational efficiency with greater resilience.

Following a recent Gartner survey, just 21% of respondents stated that they have a highly resilient network today, which means good visibility and the ability to switch sourcing, manufacturing and distribution activities around quickly. The majority of supply chain leaders understand that becoming more resilient is essential. However, rebalancing the cost of efficiency and resilience isn’t a simple task. These six key strategies will help introduce that resilience into networks.

1. Inventory and capacity buffers

Buffer capacity is the easiest method to enhance resilience, whether that be from underutilised production facilities or inventory in excess of safety stock requirements. However, buffers are expensive and supply chain leaders might have a difficult time justifying that to the C-suite. Buffers can be used in the form of surge capacity for new product launches, while organisations can also create buffer capacity by leveraging contract manufacturers strategically for their surge needs.

2. Manufacturing network diversification

As a result of the US-China trade war, many companies have started to diversify their sourcing or manufacturing bases. For some, this has meant transitioning to new suppliers outside of China or asking existing partners to supply them from elsewhere in Asia or in countries such as Mexico. Disruptions to supply chains have risen during the past few years and this has meant that the cost of retaining multiple supply locations can be seen as more of a cost of doing business, rather than an inefficiency.

3. Multisourcing

In 2011, major natural disasters in Japan and Thailand disrupted supply chains worldwide and exposed companies’ reliance on single sources of supply. In the automotive sector, almost finished cars couldn’t be shipped to customers due to missing and often inexpensive components. But, multisourcing is an obvious way to mitigate this risk. In order to create a multisourcing strategy, supply chain leaders must know their supplier networks in detail and be able to categorise suppliers not just by spend, but also revenue impact if a disruptive event happens.

4. Nearshoring

Beyond multisourcing, some companies seek to reduce geographic dependence in their global networks and decrease cycle times for finished products. Regional or local supply chains can be more expensive as they add more players and complexity into the ecosystem, however, allows for more control over inventory and can move the product closer to the end consumer.

5. Platform, product or plant harmonisation

The more regionalised the network, the more harmonised plant technology has to be to enable products to move seamlessly across the network. The use of common vehicle platforms for a range of models in the automotive industry is one of the most recognised examples of such harmonisation. Standardising components across multiple products, particularly those that aren’t visible or important to the customer, is another form of harmonisation. It simplifies sourcing policies and creates opportunities to place higher volumes among multiple suppliers, which scales efficiency. 

6. Ecosystem partnerships

The COVID-19 pandemic has showcased the need to have a diversified approach to sourcing. At the same time, collaboration with strategic raw material suppliers and external service partners are critical to ensure better preparedness and resilience for the future. For companies without the scale to support several locations on their own, robust relationships with contract manufacturers and global 3PLs can be key to diversifying production and distribution to different countries.

Gartner’s survey data has shown that approximately half of supply chain companies are leveraging external manufacturers or examining how they can support product moves, with a similar proportion engaging logistics partners for this same purpose.

Share article

Jun 11, 2021

NTT DATA Services, Remodelling Supply Chains for Resilience

NTTDATA
supplychain
Supplychainriskmanagement
Procurement
6 min
Joey Dean, Managing Director of healthcare consulting at NTT DATA Services, shares remodelling strategies for more resilient supply chains

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.

The Challenges

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.”

 

Share article