When a massive disruption such as a global pandemic hits, many businesses realize that their legacy planning solutions are not capable of providing the insights they need to manage such disruptions effectively. Companies are now evaluating alternatives to ensure they are better prepared in the future. What they need is a supply chain solution that will enable them to stay on top of problems, minimize damage and stay ahead of competitors.
Disruptions come in all shapes and sizes
Typically, companies face two kinds of risks: Everyday risks and exceptional risks.
Everyday risks are relatively easy to identify and manage. Power outages, thefts and damage to goods in transit and product recalls – they fall in this category because they happen often enough that probabilities can be statistically estimated with reasonable precision.
Exceptional risks, sometimes called black swan events, are situations that are not expected and are almost impossible to predict. The novel coronavirus (COVID-19) pandemic is an example. Managing exceptional risks requires insights and visibility of key information – this gives you the ability to minimize the impact of these unexpected, yet huge disruptions. It is a necessary part of supply chain risk management.
To manage everyday risks and black swan events, you need a supply chain that is designed to be resilient in the face of disruptions. But what are the characteristics of a resilient supply chain?
1. End-to-end visibility
The foundation of a resilient supply chain is end-to-end visibility. End-to-end visibility helps planners detect problems that could happen at second- and third-tier supplier levels. When you know the impact of disruptions across the supply chain, you can make the right remedial decisions. With full visibility, you can avoid taking decisions that cause bigger issues elsewhere in the supply chain.
Agility is the flexibility and speed at which your supply chain can adapt to changes. It’s crucial to make fast and accurate decisions throughout the supply chain so that you can immediately respond to customer demands. However, your supply chain planning needs to be flexible enough to implement the changes. Good decisions are crucial but to stay ahead of the game, agility is key.
3. Optimized plans
Are you making the most of your supply chain? Optimization is about utilizing your resources effectively without compromising rules and KPIs.
For example, is your safety stock at the right level or is it leading to unnecessary costs? An optimized plan can only work if it takes into consideration constraints, business rules and KPIs so that you can measure the outcome of your decisions and improve upon them.
4. Contingency plans and supply chain risk management
Do you have backup suppliers if one of your main suppliers goes bankrupt? Do you have enough safety stock if a manufacturer stops operations? That’s why contingency plans are prepared, for when something unexpectedly goes wrong.
Many companies that aggressively pursue risk management have enjoyed:
- Less disruptions
- Reduced severity of disruptions
- Quick recoveries
While it’s not easy to perform risk identifications, assessments, probability calculations and remediation planning (avoidance, reduction, recovery), it is vital and the rewards are worth it.
Get resilient by adjusting your supply chain strategy
So, what can companies do to prepare for major disruptions in the future?
Here are a few tactics:
- Monitor inventory, including components and sources, with digital supply-chain mapping
- Differentiate how you hold inventory by using a multi-echelon optimization approach to prevent shortages
- Assess changing operating conditions in real time and proactively assess various disruption scenarios by utilizing digital twin and scenario-based modelling
- Identify alternative scenarios, understand the potential impacts of black swan events and assess the flexibility of the supply chain for your most important supply and distribution channels
How well a company endures challenges depends on the effectiveness of their supply chain management. The first priority is to implement immediate supply chain stabilization measures. Next, the company needs to understand the scenarios and take appropriate actions. Only then can it build resiliency against short-term disruptions and lay the foundation for a strong recovery.
To learn more, download our exclusive ebook about supply chain planning.