The COVID-19 pandemic has impacted the world in unprecedented ways. Many manufacturers were, and still are, faced with supply shortages as halts in global shipment make it difficult for materials to reach the production line. This is leading to fewer products on shelves for customers and, for the manufacturers, a jarring decrease in revenue.
Managing a crisis like the pandemic is, however, not impossible. In fact, this is a great opportunity for businesses to develop and implement strategies to increase the resilience of their supply chains. Events will still come up that are impossible to plan for, but having established supply chain strategies will keep your business resilient enough to push through the toughest challenges.
What is Supply Chain Resilience?
Supply chain resilience is the optimization of manufacturing supply chains in a way that balances efficiency with flexibility and sustainability. It is a necessary element of a business continuity strategy and involves the mitigation of risk taken on by having material suppliers around the world.
Examples of these risks include the current coronavirus pandemic, which has slowed down global shipping and has made it necessary to restructure many business activities.
Another risk is that of natural disasters, like hurricanes, earthquakes and typhoons. In the past two decades there have been natural disasters in supplier-dense areas like Thailand and Sri Lanka that interrupted the flow of raw materials.
Essentially, any event that causes supply chain disruptions and interruptions in the global economy are risks and having a supply chain strategy is essential to risk management.
Creating and implementing a strategy that increases supply chain resilience requires preparedness. If you’re making sourcing and procurement adjustments in the midst of disruptive events, your business cannot be resilient. To build resiliency, your company must assess supply chain risk ahead of time by creating focused supply chain strategies and conducting stress tests to assess how effective those strategies will be.
7 Strategies to Increase Supply Chain Resilience
Developing a resilient supply chain takes careful planning and strategic thinking. Below are seven strategies to apply to your supply chain management to mitigate risk.
Selecting the best suppliers for your strategy is imperative. The first four strategies listed here outline approaches to sourcing that will help your company build resilience. The final three strategies are internal activities that are also effective in building supply chain resiliency.
Redundancy is the practice of having a controlled surplus of a business resource like extra inventory or using multiple suppliers for one material. Redundancy is a short-term solution best applied if your company is working toward a comprehensive supply chain resilience strategy or is blindsided by a disruptive event, like the current coronavirus pandemic.
Contrary to lean manufacturing methods, which encourage just-in-time (JIT) sourcing of raw materials, redundancy can include keeping a surplus of materials in inventory. JIT and lean strategies are an effective approach to manufacturing but they are easiest to apply without external interruptions. Having a comprehensive supply chain management strategy is key to building resilience in lean manufacturing. In the meantime, you can consider applying redundancy to get your business through current disruptions.
Supply Chain Diversification
Diversifying global supply chains is a strong strategy for improving supply chain resilience. Supply chain diversification can be implemented by having a selection of suppliers from different areas of the world. Do not rely on multiple suppliers from a single part of the globe because a disruptive event in that region can lead to your business lacking necessary materials.
To diversify a supply chain network, build an ecosystem of key suppliers, both potential and existing. You can assign tiers to those suppliers according to preference; this can be based on partnerships, material quality or circumstances.
This strategy may appear expensive but it will save your business money in the long run because it prevents fallout from disruptive events like natural disasters and trade conflicts.
The next two strategies for increasing supply chain resilience are additional methods for diversifying a supply chain.
Natural disasters can happen anywhere on the globe. Major hubs of raw material suppliers, like Southeast Asia, are prone to events like typhoons and flooding, and the COVID pandemic has affected all parts of the world. Multisourcing a material from locations in different regions can mitigate the risk of a supplier being wiped out temporarily.
Multisourcing does not have to lead to redundancy. Establishing a relationship with a second or even third supplier and keeping them on retainer or ordering from them infrequently is a form of insurance that will mitigate the risk of a disruption in your business’s processes. When applying multisourcing as a method to increase supply chain resilience, strategically select and tier suppliers so you have a plan for which suppliers to order from and under what circumstances.
Nearshoring is another great strategy to build resilience in your business’s supply chain. Building supplier networks in the United States or North America at large reduces the distance that materials have to travel to your production lines, and less distance means less risk.
As additional benefits, nearshoring reduces production cycle times, helping you get your product to retailers even faster and increasing your competitive advantage. Plus, nearshoring is a way to reduce your company’s carbon footprint and support sustainable business practices.
Data is a plentiful resource available to any scale of business. Leveraging data is a great way to manage supply chain risk. Examine your company’s shipment metrics, industry forecasts and competitive analysis to evaluate which business processes are most at-risk pending a supply chain disruption. Additionally, data will provide insight into where efficiency may be lacking in your existing supply chain.
For the most effective implementation of a supply chain resilience plan, keep all employees, including those on the shop floor, abreast of any supplier changes and disruptions. Ideally the communication will happen before disruptions even occur. For example, allow employees to access information about material shipments so they can predict their workloads and prepare for potential disruptions, whether small or large. A cloud-based PLM solution can help keep everyone on the same page.
Employees who know the heartbeat of the production process have a good sense for quick decision making as contingency plans are put into motion. A sudden implementation of supplier and production changes could slow important measures down.
Flexibility is a key element of a successful increase of supply chain resilience. It may seem counterintuitive, but flexibility and detailed planning go hand in hand. To develop flexibility, implement business continuity strategies and perform regular stress tests on procurement and production processes.
Having multiple courses of action depending on the disruptive event will keep your company prepared to set things in motion so production can continue as smoothly as possible. For example, know which backup suppliers you will select and understand the differences in pricing and fulfillment times of each of those suppliers.
Propel Can Help Create Supply Chain Resilience
Propel’s Operations and Supply Chain Solution contains tools to help your business build supply chain resilience. With Propel, you’ll gain easy onboarding for new partners so you can make supplier adjustments quickly. To learn more about how Propel can help you build a resilient supply chain, schedule a demo today.