By their very design, global supply chains are pretty vulnerable to external factors. Accidents, extreme weather events, a natural disaster, social instability, or a global economic crisis can all have a seriously negative effect on today’s supply chain. The current COVID-19 pandemic is an excellent example of what can happen when a supply chain strategy is not prepared for a volatile market or other such unpredictable events.
Unfortunately, there is no foolproof way of overcoming these risks, particularly such extraordinary events like the coronavirus outbreak. This is in large part due to the very little historical data available to properly anticipate all the variables that need to go into the overall global trade management and responsible supply chain planning. However, some companies out there are better equipped than others when it comes to having a more resilient supply chain.
Resiliency to any sort of disruptive event is a key element of success in supply chain risk management. This is particularly true in today’s world, where the number of potentially disruptive events is higher than ever. As such, resilience to supply chain disruptions is no longer just about how to mitigate risks and ensure business continuity; it’s also concerned with positioning one’s organization in such a way to actually gain a competitive advantage in the event of unforeseen circumstances. So, how can a business build a more resilient supply chain and be in tune with today’s volatile and unpredictable world?
When we talk about what it takes to develop resilience in terms of supply chain systems, we are referring to the ability to return to previous performance levels. There are several ways by which companies can make their supply chain network more resilient to all sorts of different disruptions, respond quickly, and reduce risk amid the COVID19 situation.
Focusing on Redundancy
One of the main ways of building a responsible trade and supply chain is to focus on redundancies. The organization can hold some extra inventory, work with more than one supplier, maintain a low capacity utilization, diversify the supply chain, and more. Having some redundancies in the supply chain will provide a business with some needed legroom in the case of a disruptive event. If, for instance, you’re getting your raw materials from a single supplier and something unexpected happens along the road, you will still need to keep production lines running. Otherwise, you may risk losing business, or worse. Having two or more suppliers will help you mitigate this risk and, by extension, make your supply chain more resilient.
However, redundancy almost always comes at a cost because it is often a temporary and expensive measure. If you’re holding redundant stock, you will also need to pay for capacity and manpower, in addition to an overall reduction in operational quality.
Focusing on Flexibility
By focusing on flexibility instead of redundancy, companies can better withstand significant disruptions and respond to a wider variety of demand fluctuations without having to sacrifice operational quality or increase costs by a significant margin. There are several ways for businesses to achieve such a high degree of supply chain flexibility and resilience. These will include some of the following:
Introducing Standardized Processes
Though it might seem somewhat counterintuitive at first, standardization is an effective way of increasing supply chain flexibility. By introducing interchangeable parts into many products, cross-training employees, and relying on similar designs and processes, you will be in a far better position to respond to a disruption. By quickly and efficiently relocating these resources and personnel to wherever they are needed, you will be in a far better position to respond to any situation as it arises. In addition, you will be able to do so at a minimum cost.
Using Simultaneous Processes
Concurrent processes, rather than sequential processes, are critical in areas of the supply chain such as product development, production, and/or distribution. Simultaneous processes will not only help speed up recovery after a disruption event but will also provide other collateral benefits in improved market responses. By aligning more of the company’s activities, such as marketing, sales, and production, with the rest of the supply chain, you will also be able to increase the supply chain visibility. In doing so, you will be able to view each operational area simultaneously, allowing you to assess each of these areas more easily and effectively in the event of an emergency.
Plan to Postpone
By designing as many products and processes as possible for maximum postponement, businesses will be able to greatly increase their flexibility and supply chain resilience. By keeping products in semi-finished states, companies will be able to boost their flexibility by moving products from surplus to deficit areas at a moment’s notice. This also helps them increase their fill rates, as well as improve customer service, among other such benefits. With a plan to postpone business strategy, companies will be able to better streamline their operations without having to increase their inventory and inventory carrying costs.
Whenever a customer becomes available, products can be completed based on their exact requirements. This strategy is particularly effective for products subject to high demand variability. By making them generic at first, businesses will also avoid the obsolescence factor that comes with many of these products. Ultimately, this strategy is about postponing some activities in the value chain until a customer order is received.
Aligning Supplier Relationships With Your Procurement Strategy
Every trading partner is important to an organization, but probably none are more important than suppliers. These partners have a huge role to play at every stage of the product lifecycle. In order to get the most out of their products, companies need to work closely with their suppliers. This includes everything from sourcing raw materials to ramping up production, finding better raw material options, and more. As such, businesses need to build and maintain strong and deep relationships with their suppliers. In doing so, they will be better able to monitor and detect any potential problems within the supply chain. With a strong relationship, companies can also rely on their business partners for assistance in dealing with such unforeseen circumstances.
On the other hand, businesses that are not intimate with a relatively small group of suppliers will need to have an extensive supplier network if it wishes to maintain similar levels of supply chain resilience. By not having the same deep relationships with their suppliers, they will, most likely, not be made aware of any supply chain problems ahead of time. In this scenario, companies need to rely on a large number of trading partners so as to spread out and minimize the risk should a failure occur. That said, there is no one-size-fits-all strategy here, and companies will need to pick and tailor theirs in accordance with their own procurement strategy.
Conditioning for Disruptions
In the end, resilient and flexible organizations need to be “tried by fire” and experience regular disruptions. Now, this doesn’t mean that companies should go out of their way to self-inflict these sorts of scenarios upon themselves. Partnering with an experienced and professional third-party logistics provider that’s used to these disruptions will go a long way in becoming conditioned yourself. They need to be used to adverse weather, regular traffic congestion, market downturns, and many other similar problems that can cause delays. If they are, the recovery process will be much smoother for both them and your own organization.
The benefits of building a resilient organization should not be underestimated, particularly in today’s economy. Even seemingly minor unforeseen disruptions can generate big shockwaves throughout the entire supply chain, causing unprepared companies to lose business opportunities, become obsolete, or worse.
If you want to learn more about supply chain disruption and mitigating risk during the COVID19 pandemic, or you are looking for a top logistics company and a better business strategy for your trade and supply chain operations, Redbird Logistics Services can help!! Contact us today!