Our world lives in a hyper-global supply chain environment. Even the most locally sourced supplies depend on some level of the global supply chain. To many businesses, the COVID Pandemic is a wake-up call on just how unprepared we are in terms of supply chain resilience.
All businesses are facing impacts such as higher costs, delays, and unable to meet customers’ demands.
Supply chain resilience is not only about having great relationships with each of your suppliers but also a well-prepared mitigation plan for when different types of interruption occur. Having suppliers who are willing to go above and beyond to meet your needs is a bonus; however, their good customer service may get you out of a pinch but won’t be able to save you from a major supply chain disruption.
Supply chain resilience is about understanding your entire supply chain environment – know what is going on upstream and downstream, acknowledge the threats and weaknesses, and have a mitigation plan to those potential disruptions.
Small to medium supply chain disruptions happen all the time. However, the market usually has enough flexibility (inventory or substitutes) to buffer them out. A large disruption, like the recent worldwide shipping container shortage, or worldwide chip shortage, can cause some serious damage to the economy and your business. Based on historical records, major supply chain disruptions do occur. Ironically, most businesses are reactive and not proactive because they get too comfortable when things are running smoothly so they never prepare for supply chain disruptions. If businesses were informed of upcoming disruptions, they often continue to do nothing to prepare for them. Businesses only start to panic when the impact starts to affect their bottom line, and usually supply chain team is the first department to be blamed.
Creating a mitigation plan is not a simple task. It requires a multifaceted approach, including a lot of investigations and what-if scenarios. Setting a mitigation plan up is an investment or insurance on the business.
If you want to start improving your supply chain resilience, the following are some areas you should start looking into:
- Know your business environment. Acknowledge the risks and opportunities that may impact your operation. This includes competitors of your business, other industries that may be competing for the same supplies and maybe big enough to buy up all your critical supply and halt your operation, regulations and social environmental changes that may impact your business directly.
- Know the business of your supplier and their suppliers. A simple way to put this is if you depend on a single critical component from your supplier, who depends on a critical part on their supplier, who also depend on a critical ingredient from a certain region; if there is ever a major disruption on that critical ingredient, the disruption will trickle down to you. Therefore, knowing which risk will trickle down your supply chain will be key to building a resilience plan. This is why many businesses do carry an appropriate amount of inventory, have an alternate vendor on key product and services, or better yet, qualify an alternate option that meets the same needs and have a different supply chain path to diversify the risk.
- Know your customers. Understand how and in what scenarios your customers’ life and preference change, and how regulation changes in their environment may change their needs. Try to pay attention to these signs of changes coming.
Ask yourself if my business suddenly spikes, can the operation and suppliers meet the demand? If the business suddenly reduces, can the business adjust to its obligations quickly or the business needs to fulfill the obligations? And if there is a business shift to a new product or service (i.e. moving from instore pick up to online delivery), where is it shifting to and can our business shift along with it?
To put the supply chain resilience plan together, managers must be candid, transparent, and be self-critical. They should acknowledge the risks and limitations of the current supply chain environment, and be prepared for the cost. Having a mitigation plan in place is an investment in your supply chain security. However, the real challenge for most teams is that such initiative often takes place when the business is running smooth, risks are not apparent, hence the urgency is ignored. Therefore, it is important to have senior leaders’ sponsorship and support to complete your supply chain resilience initiative when the business is running smoothly.
People don’t plan to fail, people fail to plan.
So what is your team doing to improve supply chain resilience?