How to Achieve Supply Chain ResilienceTime to read: 5 minutes
In the business world, resilience is always in demand. Resilient businesses can weather the shocks and stay solid and profitable when facing many challenges.
Achieving supply chain resilience is essential for any business looking to stay competitive in today’s economy.
The recent COVID-19 pandemic reinforced an undeniable business reality: it pays to prepare for future disruptions. Investing in systems ready for supply chain disruptions creates a healthier environment where your business can thrive. In the face of a possible recession and product shortages, 2022 may still have many surprises for businesses.
Decision-makers must explore innovative solutions that make their supply chains effective and resilient. Cloud storage, digital warehousing, and AI technology are transforming logistics companies’ operations.
While overhauling your supply chain can be daunting, understanding the challenges businesses face daily justifies the additional costs. Mastering supply chain resilience provides great value in normal operations and an extra security cushion when dealing with disruptions.
Understanding Supply Chain Resilience
Supply chain resilience is the ability of a supply chain to prepare and adapt quickly when unexpected events happen. Successfully achieving resilience requires an organization to have strong tenets in place. Being robust during disruptions or having a business continuity plan to recover quickly are excellent indicators of resilience.
The most resilient supply chains can avoid disruptions by forecasting and anticipating their effects for them.
Preparing for the uncertain future is essential to ensuring business continuity. Short-term solutions may work well in a more predictable supply chain environment. Designing your company’s resilience will provide a quick reaction when uncertainty arises, and a crisis occurs.
“Firefighting,” or the quick response to disruptions, is helpful in most cases, allowing you to identify immediate problems in your supply chain. Some strategies that showcase this approach are expediting delivery to meet demand or acquiring raw materials on an emergency basis to speed up production. However, these tactics build little supply chain resilience and may even be detrimental to struggling businesses.
Approach things holistically and involve all departments and processes to ensure more agile responses to fast-moving events. Unsurprisingly, 94% of companies care about supply chain resilience.
There are many challenges to building supply chain resilience. Transparency is hard to attain. It can be costly to source products from multiple suppliers, and these can cause business slowdowns. You must see through it to achieve greater growth.
“Most supply chain leaders recognize that becoming more resilient is a necessity in the current environment,” says Geraint John, VP Analyst at Gartner. “However, measures such as alternative factories, dual sourcing and more generous safety stocks go against the well-versed philosophy of lean supply chains that has prevailed in recent decades.”
Planning for Supply Chain Resilience
Resilience translates into value. Being resilient has enabled leading businesses to do significantly better than their counterparts in terms of total shareholder return (TSR) throughout crises in any given industry.
During quarters marked by industry slowdown, well-prepared companies report almost 20% more TSR than struggling competitors -10% return.
Companies can respond quickly to client needs, deliver high service levels, and manage expenses and net working capital with the help of a robust supply chain.
Build Resilience One Investment at a Time
Preparing for supply chain disruptions is not an all-or-nothing proposition. Instead of investing large amounts at once, you can make smaller investments over time which will help your organization prepare and adjust when needed.
MIT Sloan professor of operations management Retsef Levi explains, “Often, a moderate level of investment will give you surprisingly high gains when it comes to flexibility and resilience.”
Consider three key points of disruption management: long-term survival, quicker recovery, and managing exposure. Here you can develop an initial portfolio of interventions that help businesses become more agile than more.
Anticipate and Simulate Possible Scenarios
Tools such as digital twins can simulate situations and proposed processes without delay and business expense. They employ “smart” alerts to identify which clients and consumers are prone to disruptions. Once identified, it can mimic the functioning of the entire supply chain system weeks in advance.
Create several easily testable scenarios, prioritizing and mitigating the supply chain’s most frequently failing components. Scenarios with changing levels of detail and impact can yield insights. Leaders shouldn’t anticipate the occurrence of just one situation.
By using scenario-based planning, companies can understand the impact of multiple potential risks before balancing them out. They can avoid tradeoffs between resilience and efficiency by being prepared for anything that may arise. Additionally, you will better understand what you need to do in advance, so it doesn’t cause delays or problems later.
Implement capacity and inventory buffers
Long-standing principles of supply chain profitability include reducing surplus and maintaining minimal stocks. To keep costs down, supply chain managers frequently bet against disruptions. Many businesses discovered the actual price of that gamble when the epidemic struck. This “lean” approach to manufacturing caused many retailers and sellers to struggle to have stock to sell.
When reorganizing their supply chains and manufacturing operations, businesses should change from “just in time” to “just in case.” They should also refocus their investment objectives on resilience-building solutions. Companies can thrive even during unanticipated disruptions when their supply chain operations use digital technologies. On-demand production, virtual inventories, and predictive demand forecasting could be vital in helping them prepare and weather operational “storms.”
To introduce new products or develop new growth markets, top corporations should deploy buffers in the form of surge capacity. Additionally, organizations can build buffer capacity by carefully utilizing contract manufacturers for their surge needs.
Diversify Your Network and Multisource
Gartner notes, “Disruptions to supply chain operations have worsened in the past few years” when evaluating supply chain resilience measures in June 2020. Resilient supply chain technologies, like blockchain, sensors, and advanced analytics, allow supply chain managers to oversee complex partnerships and supplier contracts. They can watch even the most remote areas of their network. Maintaining multiple supply locations won’t have to be a business cost but a necessity.
Supply chain leaders need to have a thorough understanding of their supplier networks to develop a multisourcing strategy. They must also classify suppliers by budget and how a disruptive event may affect their revenue. Diversifying can be accomplished by giving contracts to more suppliers or working with an existing single-source supplier who can produce from many locales.
Supply chain management gets challenging when you attempt to strike a profitable balance between supply and demand in today’s fiercely competitive market. There are numerous potential business advantages when businesses invest in supply chain innovations, diversification, and other resilience measures.
Measuring Supply Chain Resilience
Measuring the performance of your supply chain network is a meaningful way to quantify its resilience. Companies can do this by identifying potential points of failure and defining mitigation strategies. By assessing financial exposure, you can also evaluate the potential challenges of building resilience.
Key technologies like AI, machine learning, and analytics allow you to gain insights into the impact of external events that might cause disruptions. With a deep understanding of your business’s daily operations, managers and leaders can address multi-layered challenges with various solutions.
Some key performance indicators (KPIs) you can use to quantify resilience properly are as follows:
Time to Survive
It’s the period it takes for your supply chain operations to return to optimal performance efficiency after a disruption. Consider your staff’s welfare during a downturn and how quickly these problems are identified and addressed.
Time to Recover
The time it takes to recover your backlog and start working on current tasks.
Time to Thrive
The overall evaluation of a company once a crisis has passed. Compare the current state of your business operations before the crisis hit. List down the implemented changes and how they have impacted your business for better or worse.
Resilience is more than just overcoming operational disruptions. A robust company with a resilient supply chain survives challenging times and uses them to innovate and grow.
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