It is hard to imagine a period more disruptive to supply chains than the current environment. Globalization, environmental disruptions, cyberattacks and now a pandemic have made supply chain managers key leaders in mitigating the risks of multiple disruptions to businesses. — By Gerald Donald
The pandemic had immediate negative impacts on business, and whilst it is not the first pandemic to cause supply chain disruption, it is the first since global trade became common for all sizes of businesses. It is also the first since climate change began causing significant supply chain disruptions, since increasingly sophisticated cyberattacks started accelerating, and since rapidly shifting consumer demand began pressuring suppliers in ways they could not meet due to lack of flexibility in production and logistics.
COVID-19 triggered major disruptions, but some of them were already lurking beneath the surface of global and domestic supply chains. A prime example was the public revelation that the U.S. was not manufacturing any antibiotics and depended solely on trade with international companies.
Fragile supply chains collapse quickly when even a small disruption takes place, impacting the company’s brand, reputation and bottom line. Mitigating these risks has elevated the role of the supply chain managers, who must step up and embed resilience in the supply chain so the next pandemic, flood, cyberattack or other disaster presents low risk to the ability to continue doing business.
Out with the Linear and in with the Networked
Supply chain management post-COVID is undoubtedly more complex than it has ever been before. The pandemic forced companies to rethink their global and domestic supply chain models because it revealed the vulnerabilities that a booming economy was able to hide.
However, businesses face not just the issue of COVID. The last five years have led to new tariffs, like the Section 301 tariffs initiated in response to China’s policies and practices related to innovation, technology and intellectual property. Natural disasters, limited critical resources, acts of terrorism, labor disputes, changing consumer needs, and interrupted logistics networks are just some of the many challenges that supply chain managers have faced and will continue to face. Just recently, it was announced there is a shortage of computer chips, which could have a significant impact on most businesses.
Until COVID arrived, many companies had focused for years on supply chain optimization to reduce costs and minimize inventories, and in doing so, a lot of flexibility was lost. COVID can be blamed for triggering major events, but it cannot be blamed for the inability of many companies to absorb the disruptions.
The next generation of suppliers and supply chains needs new strategies to increase resilience, supplier collaboration, flexibility and agility. It also needs to improve visibility from end-to-end in the supply chain.
The next generation of suppliers and supply chains needs new strategies to increase resilience, supplier collaboration, flexibility and agility.
One of the best strategies is becoming a next-gen supplier by leveraging advanced technologies. These include artificial intelligence (AI), 5G, Internet of Things, and digital supply networks (DSNs). The DSNs eliminate the silos that keep volatility and inflexibility in supply chains, by connecting the organization to the whole supply network. The linear supply chain is replaced by an agile interconnected network.
Deloitte describes DSNs as systems in which advanced technologies establish a digital thread through digital and physical channels, connecting information, goods, and services. Advanced analytics, machine learning, and AI are used to drive meaningful insights from data. The DSN connects synchronized planning, digital product development, intelligent supply, smart factory, dynamic fulfillment, and connected customer and aftermarket.
The Brookings Institute follows the same line of thinking. Supply chains need to be end-to-end and data driven, and to retain supply chain control. Integration, transparency and visibility are needed, but they alone do not promise resilience. Supply chain managers need to be able to view raw materials, semi-finished goods and finished goods from the suppliers’ suppliers right through to the customers’ customers. But that ability needs enhancement through preparation for disruptions before (not after) they occur. To anticipate disruptions requires carefully determining what data to collect so that this can be converted into actions for rapid disruption detection, response, and recovery.
Also critical, according to the Brookings Institute, is preparing for disruptions such as those experienced during the pandemic.
This requires an investment in increased raw material inventory, work-in-progress and final product inventories. Added manufacturing and storage capacity are needed to improve surge capability. Increased numbers of suppliers and ensuring the surge capability of suppliers of key resources/materials or work-in-progress are also necessary. Real-time demand data can be used to determine transshipment decisions concerning materials and products to maintain appropriate inventory levels. Real-time decision-making can also assist with moving manufacturing currently in distributed multi-facility additive manufacturing systems to different geographies. A resilient data-driven supply chain network can detect, respond to, and recover from disruptive events by adjusting manufacturing capacity when necessary.
Corporate supply chains also need to include more diverse and smaller suppliers in supply chains. This is not a charity call but rather a resilience call. Diverse suppliers are usually smaller, more adaptable and have access to new markets that large corporations may not have found yet. During the pandemic, it was small businesses that displayed their agility, like the craft beer manufacturer that switched to bottling sanitizer solutions and the printing company that began producing masks. From this point on, diverse and small suppliers can demonstrate their agility and flexibility as a competitive advantage for corporate customers.
There is no single strategy for building a next-generation supply chain that is resilient and able to mitigate the major risks present in today’s market. However, there are a number of obvious strategies. It is still too common for companies to focus on cost minimization rather than risk minimization, relying on a single source for critical materials, work-in-progress, and finished goods.
An obvious strategy is to source from two or more suppliers for critical products, and to identify and apply supplier monitoring and risk mitigation strategies to Tier 1 and Tier 2 suppliers. Companies during the pandemic that had invested in mapping their suppliers on a sub-tier basis knew exactly where parts and raw materials were originating in the Wuhan and Hubei areas, and could fast-track their responses and anticipate the multiple impacts on products.
Another strategy is to only do business with suppliers who provide visibility into their manufacturing, warehousing and logistics processes. Once again, advanced technologies like AI make it possible to do the level of monitoring needed, especially for global suppliers.
The Next Disruption
Supply chain disruptions are not going to end when the pandemic ends.
There are still issues like tariffs, natural disasters, cyberattacks, and other disruptions that will impact supply chains through the coming decades. At some point, there will be another pandemic.
Supply chain managers who successfully implement risk mitigation strategies that embrace the new normal of frequent global disruption are always ready to respond.