Blog

The Importance of building supply chain resilience

Vincent McGrath
Senior Supply Chain Business Director

 

Introduction

Traditional supply chains were designed to strive for lean JIT systems or holding just the right amounts of inventory in the right place at the right time to optimize cost. Globalization has led to geographical and vendor concentration in low-cost locations to reduce costs with much of the focus on Tier1 suppliers and not looking beyond that to Tier 2 and Tier 3 suppliers where many of the vulnerabilities and risks may lie. Globalization has also led to elongated and complex supply chains that can leave organizations exposed to severe supply disruption and impact to brand reputation.

Never has there been a more important time for organizations to build resilience into their supply chains. In the past 18 months we have seen seismic disruptions to global supply chains including the pandemic, the Suez canal crisis, Brexit and the China / US trade war leaving many organizations exposed.  Particularly exposed have been those who have been focused on getting the lowest cost and who may be heavily reliant on single sourced suppliers.  They are now rethinking their supply chain strategically to mitigate risk with the though process of moving from “just-in-time” to “just-in-case”.

Supply chain as a source of competitive advantage

In a heavily crowed marketplace organizations are relying more and more on their end-to-end supply chains to create superior customer value and gain competitive advantage through increased supplier collaboration, order fulfilment and customer management. Leadtime and delivery predictability have become important differentiators as the order winning criteria is shifting more and more from product based to service led.

Disruptions that occur from global events such as the recent pandemic do not just impact on the supply side. Consumer demand behaviour also changes requiring the need for agility, flexibility and customer collaboration across the supply network. The last 18 months has also seen an acceleration in consumers shifting to digital platforms and services where the key determinants hinge on supply certainly and speed of delivery.

The supply chain can be seen as a complex web.  For global organizations real advantage is derived from the ability to manage the vast network of relationships and flows across this end-to-end supply chain network, with more than ever today the end customer being an integral part of the supply chain process.

The Supply Web of a typical global organization

Why does supply chain resilience matter

While many organizations plan for disruptions and unforeseen events in their traditional supply chain with documented business continuity planning policies and disaster recovery procedures they are rarely tested or designed to cope with significant global disruptions.

Events in the past 18 months amplify how unplanned disruption can have a perilous impact to even the most resilient supply chain with unforeseen factory shutdowns, frozen supply chains, labour mobility disruptions and curtailment in transport and shipping networks These disruptions can catapult many organizations into grave uncertainly.

As organizations continuously work on achieving the lowest costs, not that cost doesn’t matter, other key factors such as risk and performance need to be considered in order to ensure an agile, robust and resilient supply chain that can pivot and adapt quickly to sudden supply shocks. The importance of building supplier relationship and collaboration cannot be over emphasized.  Built-in flexibility to rebalance capacity both locally and geographically in parallel with a multi-source and second source supplier network for critical components and products is necessary to maintain customer demand and retention.

How to build supply chain resilience

A report by a leading consulting group McKinsey (2020) emphasized the importance of transparency across the supply chain as a critical factor to assess the impact of supply disruption – highlighting the importance of having a deep visibility and understanding at all levels.

The determinants of a resilient supply chain to deal with unforeseen disruptions include the following

  • Transparency across all tiers within the supply chain mapping the origin of critical components and supply alternatives.
  • Inventory visibility across all levels including service stock that can be used in production process
  • Logistics capacity and collaboration with key partners to secure routes and mode options available
  • Customer demand planning to get more improved accuracy on true customer requirements and timing.

Financial planning and scenario modelling – as reduced sales and higher costs can take their toll on earnings and liquidity

Source

The importance of a Control Tower

Extreme shifts in supply and demand highlight the importance of information and communication flows both upstream and downstream and throughout the supply network as supplier lead-times, manufacturing capacity and other resources along the value chain are uncertain and information is continuously changing.

At Exertis Global Operations we run SAP ERP systems with bespoke reporting, integrated supplier portals and analytical dashboards that are work benches for our clients. Our tools and processes provide a control tower that brings together visibility of all the layers in the value chain from sourcing, planning, forecasting, fulfillment and logistics into a centralized location that help our customers make informed decisions.

As economies bounce back this year, many challenges still lie ahead with continued component shortages and material cost increases further compounded by huge hikes on freight rates.  The need for alignment across all levels of the supply chain have never been as important to meet customer expectations and ensuring internal financial objectives are achieved. Who knows what is next  around the corner.  It’s by no means business as usual!

Is your supply chain adequately prepared for the next business disruption?