The Need for Increased Supply Chain Resilience
Updated: May 8
By nature, business is uncertain. The core of any business model needs to be flexible in order to adapt and adjust to external factors at a much faster pace.
Any company’s supply ‘chain’ is an ecosystem of many layers, all operating to get their inventory from one location to another, starting with the supplier of raw materials to the product manufacturer, leading to the retailers and wholesalers, and ending with the final customer. The reality of supply chain management is that most companies do not have direct access to every tier involved in their supply chain sequence, making it harder to predict, plan for, and control the entire process from start to finish.
A Deeper Look at Supply Chain Disruptions
Supply chain disruptions cost the average organization 45 percent of one year’s profits over the course of a decade. (Source) While the pandemic has highlighted the need for more resilience in handling these issues, a tighter connection between all the layers has been long overdue to avoid any such global supply chain issues in the future.
The lack of transparency in sharing real-time data and schedules between companies and their suppliers is a gaping concern, especially during the pandemic when more challenges have been added to the equation. Lack of transparency prohibits the proactiveness needed to make an agile supply chain and tackle any upcoming disruptions.
Most companies deal with only the first tier of their supply chain but are unable to foresee and plan for the disruptions that occur in their second and third layers, which leaves them handling last-minute issues when they arise.
Pre-pandemic, supply chains traditionally had weekly and bi-weekly schedules, but the reality has changed. Reduced production capacity and labor signal a need for shorter intervals and live updates throughout the system to make more agile supply chains.
One of the most difficult global supply chain issues is the lack of understanding of the demand and supply trends which makes it difficult for businesses to maintain the right levels of inventory for core products. This leads to inventory being held up in non-moving items, affecting their cash flow.
Furthermore, during the Covid-19 reality, businesses are working on keeping their operation moving by focusing less on their profit and more on trying to maintain cash flow just to keep the light on.
Over-reliance on suppliers with critical capabilities has led to gaps in the supply chain as everyone in the sequence of getting a product from the manufacturer to the user feels the mounting pressure of these disruptions.
Climate change has brought about disruptions in global weather patterns that are increasingly affecting everyone involved in the logistics and transportation aspects of the supply chain. Planning for such weather trends using advanced tools has become more important than ever before.
The pandemic has disrupted the workforce at epic levels where many industries are left with skeletal human resources. Worker uncertainty affects all those that are involved, and any changes in labor at one tier will trickle down the line and affect the sequence.
Path to build more agile supply chains
The good news is that some of these pandemic-related changes are leading to positive steps that will permanently strengthen the supply chain management going forward. The agility with which every layer accepts the transformation, and uses technology to its advantage, will determine the path forward.
Maintaining strong relationships with the line of suppliers and manufacturers is a no-brainer, but it tends to get tricky when we consider that most supply chains have a global footprint, where different countries with various modalities, including government rules, come into play. A good strategy is to create dual or multi-layers of suppliers, preferably a good mix of local, national, and global suppliers, which help diversify operations and provide a safety net for high-demand inventory. If the business allows, it’s worth considering the possibility of a direct-to-consumer model, which reduces the tiers of retailers and distributors.
Digital Planning and Transparency
Creating a more efficient level of transparency in the digital planning and sharing of real-time data is the best way to put tools provided by modern technology to good use in the supply chain. Along with the convenience of every tier in the system being able to talk to each other, a company gets control over its operation and can pivot to its needs before a disruption occurs.
Algorithms for Understanding Demand and Supply Needs
Understanding demand is the most critical aspect of providing a steady supply of relevant inventory, and once again, technology provides the ability to use advanced algorithms to create a demand-supply balance, which factors in forecasting models based on changing trends and seasonal variations in that industry.
Using planning and programming tools, and algorithm-based numbers, to set up key points of control and audit in the supply chain is simpler today than it has ever been. Managing these processes involves looking at everything, from procurement and manufacturing to logistics and delivery, all while factoring in manpower requirements at every stage in the product lifecycle.
Adopting these key changes is not a one-person show but a collaborative effort of all businesses involved in the sequence. Think of the supply chain as an orchestra; if everyone plays in sync, you have beautiful music. Strengthening the ecosystem and creating increased resilience within all the layers will lead to success. There really is no other choice.