Supply Chain Resilience: Handling Risk and VulnerabilityBy Alberto Robles | Mon, 08/24/2020 - 09:31
Without a doubt, COVID-19 has had a tremendous impact on the global economy. Unfortunately, companies going into bankruptcy, massive layoffs and disrupted supply chains are now part of the new normal.
Industries around the world are facing the consequences of the COVID-19 impact on their supply chains. Unfortunately, most of these consequences could have been prevented, but they were not. The coronavirus crisis reveals risky sourcing strategies that have made cost the top priority even when that could jeopardize materials supply and availability when disruptions occur.
The problem with having cost as the top and sometimes as the only priority, is that we frequently forget to consider other elements that could create redundancy and reduce supply chain risk. It is very tempting to rely on a single region and/or a single source because that usually helps supply chain managers meet their cost targets, but when unexpected and disruptive events occur like COVID-19, companies are exposed to supply shortages, rapid stock consumption and finally to production shut down.
The pandemic has put our business models and the way we manage risk and vulnerability to the test but what can we do to protect our supply chains from highly disruptive events? Can we recover operational capability after disruptions occur? Let’s take a deep dive into supply chain resilience.
Supply chain resilience can be defined as the ability to endure highly disruptive events and being able to quickly recover after a disruption occurs. Resilience includes elements of proactivity and reactivity. Companies can proactively take action to avoid and minimize the impact of disruptions, but also, they should have a supply chain recovery plan in place to recover operational capability after a disruption has occurred.
Ideally, every company should have a supply chain that can effectively anticipate and prepare for any disruption and at the same time have the ability to quickly recover from any disruption that may occur; however, to excel at both capabilities would be very expensive and impractical.
Realistically speaking, supply chain managers need to find the right balance between proactivity and reactivity and invest more on whatever makes more sense for their specific cases.
Companies and supply chain managers can start building resilient supply chains by considering the following aspects:
- Improving transparency and information visibility in the supply chain that can create the ability to anticipate potential risks of disruption to the supply chain.
- Going beyond direct suppliers and assess risk of impact on lower level vendors. Poor sub-tier management can create a dangerous blindside.
- Paying special attention to those commodities that are critical to business operations and that could significantly impact revenue and business profitability.
- Avoiding the risks of single sourcing by diversifying the portfolio of suppliers and regions. This can enable more options to switch to less affected suppliers and regions when a supply chain disruption occurs.
- Creating decoupling hubs that are close to operational zones. These decoupling hubs would serve as distribution centers strategically located to protect supply networks from potential shortages.
- Enabling new transportation alternatives that could be used in case of an impact to current transportation networks due to natural disasters or temporary lockdowns.
- Creating a business continuity plan to anticipate potential contingencies, get ready for them and know how to quickly respond in case of a supply chain disruption.
Technology is also a great tool and enabler of supply chain resilience. The adoption of new technologies such as blockchain, machine learning and artificial intelligence has dropped the cost of supplier monitoring and has also automated transactional processes that used to be manual.
Creating a resilient supply chain to successfully manage risk and vulnerability is hard and expensive to achieve. Several suppliers need to be evaluated, developed and qualified in different regions; however, the costs can be offset by other means by Supply Chain professionals.
Having a resilient supply chain is like having an insurance policy: it comes at a cost, but it is better to have it and not need it, than need it and not have it. Resilience will give companies the ability to quickly shift production from one supplier to another and from one region to another in case of any disruptive and unexpected event like COVID-19.
The current pandemic has resulted in several lessons learned and reminds us one more time of those lessons from the past that we have not yet learned. Robust supply chain management comes at a cost but it is an investment that we can afford now, that will give supply chain professionals peace of mind and will better position companies in the face of a new pandemic or any other highly disruptive event