Your supply chain can be anything from a long and complicated process, to a few contract providers. Understanding how all your components and partners are contributing to your resilience is a critical element of maintaining the bottom line or providing peace of mind.
In today’s global environment with fuel, currency, and geopolitical risks it is essential to understand where your network has risk exposure and how resilient you are if one of your critical nodes were disrupted. The value of the worldwide supply chain market is $15.85 billion.
What is Supply Chain Resilience
In order to maintain a high level of business continuity, supply chain resilience is the ability to meet customer demands with minimal disruption to the supply chain. This may include a reduction in service levels or product availability due to disruption without significantly impacting profitability.
Following COVID-19, the supply chain management (SCM) market is expected to increase from $18,699.45 million in 2020 to $52,632.37 million by 2030, at a CAGR of 10.7%.
The ability to maintain this type of resilience while ensuring that disruptions are not tolerated can increase business profits by reducing operating costs and increasing customer satisfaction, providing a competitive advantage, and fostering innovation and growth.
Given the increasing complexity of global supply chains, it is critical to understand how all your key elements are contributing to your resilience, especially if their assets form an interconnected network, like a national infrastructure.
6 Strategies for a More Resilient Supply Chain
As the world economy becomes more interconnected, the risks associated with supply chain disruptions are becoming more prevalent. Supply chain leaders are therefore increasingly focused on supply chain risk management and chain resilience.
In order to effectively manage supply chain risks, it is important to have a clear understanding of the various types of risks that can occur, as well as the potential impact of each type of risk. Additionally, supply chain leaders must be proactive in identifying and addressing risks, as well as developing contingency plans for disruptions.
1. Inventory Alignment
If you have inventory scattered across multiple locations you may be able to reduce costs by stocking more in fewer locations. However, there are significant risks to doing this, especially if the location is extremely vulnerable or is too far away to be practically supplied in case of a disruption.
By allocating more inventory to central facilities, you create a risk that if that facility becomes inaccessible it will severely impair your operations. If this were to occur in multiple locations simultaneously you could be put out of business fairly easily.
2. Contract Partners and Suppliers
If you are using third-party contract partners to help you fulfill a service you may be able to reduce costs and streamline your process. However, these partners or suppliers may have their own supply chain or the services they provide could impact your company’s business continuity.
For instance, if your contract partner relies on a third-party supplier for services, the disruption of that third party could expose your contract partner and consequently you. Allocating more risk to an already vulnerable supply chain element, can increase the risk of a severe interruption in service, thereby negatively impacting overall performance.
3. Spare Parts
In order to maintain the highest level of performance, you may determine it is necessary to have a stock of spare parts designed specifically for your equipment in case they wear out or need replacement. While this may seem like a good idea, it creates a significant risk if another supplier that produces the same part begins experiencing shipment delays or other interruptions.
If the spare parts are produced by a third party, then it is probable that the disruption will impact your manufacturing operations, unless you have contracted for incremental supply delivery before disruptions occur. By increasing your allocation of spare parts to mitigate against possible failures in supply you can inadvertently increase your vulnerability.
It is important to understand the impact disruptions can have on your supply chain. As a general guideline, if you find your supply chain is dependent on any one of these areas, then an interruption in service may result in a major disruption in your operation.
For instance, if you have an office location that requires shipping materials in order to function as intended, and you are dependent on a third party to ship those materials on a regular basis, an interruption in service can cause a critical disruption in your operation.
5. Supply Chain Management
It is critical to understand the impact of your supply chain management activities and how they may increase or decrease risk during a disruption. For instance, if you find your supply chain management activities are eliminating unnecessary risk exposure through consolidation of resources or warehousing, then you are increasing the risk of disruption in case of a major disruption. If your supply chain management policies are preventing you from consolidating or warehousing, then you are increasing the risk to your company.
6. Loss of Productivity
Most companies that have achieved success realize that a successful company is not just about resources, but also about key elements such as products and services. For instance, if you have a service department they are unable to operate or provide their services because of an interruption in service, then this could have a significant impact on the profitability of your company due to lost productivity. This can be viewed as an unintended consequence of a campaign that was intended to reduce risk exposure.
7 Reasons Why Supply Chain Resilience is Important
As the global economy becomes more interconnected, the risk of supply chain disruptions increases. To mitigate this risk, many companies are developing resilience strategies. These strategies typically involve building strong relationships with suppliers, diversifying the sources of raw materials, and increasing communication and collaboration among supply chain managers.
By investing in these resilience strategies, companies can protect themselves from the significant financial and operational impact of supply chain disruptions.
Despite the fact that supply chain visibility is the third most important priority in 2017, up from sixth in 2015, only 6% of 623 respondents indicated they have complete insight within their supply chains.
Following the trend of globalization, companies that do not understand how their supply chain can be disrupted in order to maintain a high level of performance and customer satisfaction are potentially exposing themselves to severe business disruptions.
1. Increased Costs
Disruptions in supply chains have a significant impact on profitability and profitability is strongly linked to profitability and customer satisfaction. Following an interruption to your operation, you may be forced to reallocate resources away from more profitable activities in order to satisfy limited demand resulting in a loss of shareholder value and possibly bankruptcy. In addition, unexpected costs can increase your vulnerability when it comes time for planning, budgeting, and forecasting scenarios.
2. Decreased Customer Satisfaction
Disaster recovery is an essential part of any preparedness plan. Having a strict disaster recovery plan means that you are taking preventative measures to mitigate risk. Effective disaster recovery plans reduce your cost of managing an interruption and provide for increased resilience against future disruptions so that any necessary interruptions can be effectively managed.
Customers may be unhappy with reduced services and product availability due to delayed shipments or other unanticipated events which may have been avoided had the need for a disaster recovery plan been properly identified and implemented. Due to the COVID-19 pandemic, 38.8% of small firms in the United States encountered supply chain delays.
3. Aggressive Competitors
Companies that do not understand the importance of a disaster recovery plan are at risk of losing critical information, financial data, and trade secrets. In some cases, disruption may lead to targeted information sharing by competitors.
4. Governmental Intervention
Disaster occurrences can be catastrophic for an entire region or even an entire country. For example, if a tornado hits your company’s manufacturing plant in Missouri, then it would be irresponsible to expect that your product could be shipped immediately from a plant in Texas to its customer in Minnesota in order to avoid potentially devastating losses. Therefore, it is important for companies to plan for disruptions that could impact their supply chain through careful contingency planning.
5. Reduced Efficiency in the Supply Chain
Although disruption to the supply chain may increase the risk of a major disruption, it may also decrease your company’s ability to be as productive as it would have been without a disruption.
If you understand how operations can be impacted by disruptions, then you can prevent disruptions that could lead to decreased effectiveness and efficiency throughout your supply chain. For example, if your end users are not receiving service or product availability levels that they expect then this could have a direct impact on company performance and profitability.
6. Increased Operating Costs
A lack of awareness of the impact of disruptions on operations may result in an increased cost for operating your supply chain. For example, a fast-food restaurant that experiences poor food quality or customer dissatisfaction after a customer disruption may raise prices because the increase in operational costs is too large to absorb.
In addition, if you operate multiple distribution centers and you experience supply chain interruptions at one center this could result in additional operating costs due to higher transportation costs, as well as, reduced efficiency due to lower productivity.
7. Increased Risk Exposure
Supply chain disruptions can significantly decrease company profitability and shareholder value. If you do not take preventative measures to protect against supply chain disruptions then you could be susceptible to disruptions that may occur in the future because there would be no planning for these potential disruptions.
How to Build a Resilient Supply Chain
The goal of any supply chain is to be able to withstand disruptions and continue functioning. Resilient supply chains are one that is able to adapt to changes and continue operating despite unforeseen events.
The key to a more resilient supply chain is having a robust supply chain strategy in place. This strategy should take into account the potential for disruptions and have contingency plans in place to minimize the impact on supply chain performance. By being prepared for disruptions, companies can ensure their supply chain resiliency.
There are several steps you can take to build a resilient supply chain:
1. Managing the Supply Chain
You can build your company’s resilience by managing your supply chain in order to identify any potential threats so that you can plan for and appropriately respond to them.
2. The Importance of Event Management
A disruption in one service could be caused by something within your environment, something outside of your organization or something that is out of your control. It is important to develop an effective event management plan that not only identifies the source of the disruption but also identifies what caused the disruption.
3. Identifying Risks in Your Supply Chain
Identifying and reducing risk in each of the elements in your supply chain will help protect you from disruptions originating from within or outside of your supply chain.
4. Understanding How to React if a Disruption Occurs
If a disruption does occur, then it is important to understand how to respond effectively so that you can limit the effects of the disruptions and reduce any damage to your company’s reputation or financial performance.
7 Benefits of a Resilient Supply Chain
Disruptions have an impact on a business’s supply chain operations, efficiency and profitability. In some cases, disruptions are so severe that they lead to complete reorganization or even bankruptcy.
Following an interruption to your operation, you may be forced to reallocate resources away from more profitable activities in order to satisfy limited demand resulting in a loss of shareholder value and possibly bankruptcy.
By understanding the disruption impacts on your company and how to mitigate these effects through effective planning, you can minimize any losses from these events.
According to one study, 57% of businesses believe that supply chain management is critical to gaining a competitive advantage and improving their firm.
The following list represents seven benefits that can result from a resilient supply chain:
1. Cost-Efficient Operations
A resilient supply chain helps improve operations to ensure that you can respond to disruptions quickly, reducing the effect of any disruptions that may occur in your supply chain.
2. Reduced Risk Exposure
A resilient supply chain can help ensure employee safety, product and service quality and financial performance by preventing potential disruptive events from occurring that could result in significant financial losses or decreases in shareholder value.
3. Improved Quality Management
A reactive response to a disruption within your supply chain may result in decreased quality for the end customers if the supplier is not able to meet demand after a disruption occurs. A proactive approach to quality management can help ensure that your supply chain is able to meet both customer and supplier needs by preventing disruptions from occurring in the first place.
4. Reduced Operating Costs
A resilient supply chain helps reduce operating costs by planning for potential disruptions before they occur so that these events do not disrupt your production or result in any loss of efficiency within your operations.
5. Increased Customer Value
By reducing disruptions and maintaining high levels of service quality, you can ensure that your customers will continue to receive high levels of service and products available which can result in an increase in customer satisfaction and an increase in industry competition for your customers’ business, resulting in increased industry profits.
6. Increased Shareholder Value
A resilient supply chain can help ensure that you are able to meet customer demands and maintain profitability by preventing disruptions from occurring by planning for potential disruptions prior to their occurrence so that you can respond properly to these events.
7. Increased Employee Morale
A resilient supply chain helps improve employee morale through proactive planning in order to ensure high levels of customer satisfaction which can result in an increase in employee retention as well as increased service quality and product availability, resulting in increased industry profits.
From 2020 to 2027, the worldwide supply chain market is predicted to grow at an 11.2% CAGR. There is no one “right way” to build a resilient supply chain. In order to achieve the best results, you must build the supply chain in a manner that fits your organization’s unique needs and your unique business environment.
There is no one supply chain that will work for every business. When you are building your resilient supply chain, it is important to understand what your organization will need in order to successfully operate after a disruption and identify these needs in advance through effective event management planning as well as resilient strategies.