By Srajan Nawal
Until the Coronavirus began wreaking its havoc, global companies could run their supply chains on the assumption that disruptions would be rare and short-lived, and that products should be sourced, produced, and distributed at the cheapest locations to be found, wherever in the world that may be.
The pandemic, however, has exposed the risk, like never before, of concentrating sources in one location—especially when it’s far away from a company’s headquarters and markets.
When vast areas of China went into lockdown in January-February in a bid to contain the Coronavirus pandemic, some fifty lakh companies were impacted globally. Why? Because China is the world’s leading supplier of components, raw or processed materials, and major subsystems.
It is also fair to speculate that future supply chain designs will need to be monitored using new performance measures such as resilience, re-configurability, and responsiveness, along with traditional KPIs such as cost, quality, and delivery.
Five Ways to Improve your Supply Chain’s Resilience:
1) Create Transparency
This process involves determining the critical components for your operations and then, working with production personnel, identifying which ones are sourced from high-risk areas and lack ready substitutes.
Once this exercise is completed, your company can then assess the risk from tier-two suppliers onwards. Based on the results of such assessment, you might then consider the following steps:
- Engage with all suppliers, across all tiers
- Form a series of joint agreements to monitor lead times and inventory levels
- Use this system as an early-warning alarm for interruption
- Establish a recovery plan for critical suppliers by commodity.
With such a system in place, a company will be able to identify specific vulnerabilities across the multi-tier supply chain.
2) Diversify Your Operations
The companies most likely to emerge strongly from the Coronavirus crisis are those that had diversified their operations and implemented multi-sourcing strategies.
It has been argued that the marginal benefits of concentrating production geographically in order to save money are diminishing and that by running a number of plants in different locations not much is lost in efficiency but much is gained in resiliency. The reasoning behind this, is that the chances of all plants being disrupted at the same time are significantly reduced.
The disruption to primary supply caused by the Coronavirus pandemic has seen many global manufacturing OEMs scrambling to find secondary or tertiary suppliers, as well as moving some core business functions back to their own factories.
Instead of being forced to scramble for product or components the next time global production lines are disrupted by a major disaster, companies that now take steps to diversify their operations will rather direct their energy towards maximising the deployment of the resources still available.
3) Shorten Your Supply Chain—Source Locally
To boost the resilience of the supply chain, it may be worth establishing production facilities with local sources of supply in each of your company’s major markets. Not only does this spread the risk, but transportation costs are lower.
Because capital costs are higher, however, company leaders must study the finances and determine if such a move would improve your ability to serve customers while remaining competitive.
Benefits of local sourcing include the following:
- Local suppliers are typically more responsive than distant ones and can speed up the delivery of products when needed.
- Face-to-face visits build good relationships with your suppliers, who are more likely to remember you when times are tough and your needs are great.
- Localising your supply chain can significantly reduce transport costs.
- Buying local translates into an economic boost for your community, which will also enhance your standing with your customers. You would also be tapping into a worldwide movement that stresses the need to boost local businesses in the wake of the Coronavirus carnage.
- Localising your supply chain has a positive effect on the environment as it reduces the energy required for shipping, transport, and storage.
4) Create Redundancy
An expensive and inefficient option, redundancy in this context means keeping excess capacity or back-up across the entire supply chain in case of shock events, such as natural catastrophes and epidemics.
Typically, it involves carrying extra inventory and hiring more workers than absolutely necessary.
This once-popular strategy flies in the face of the modern trend of striving for lean production processes, but those companies which were carrying buffer inventory are weathering the Coronavirus storm better than most.
The real challenge is to find the right balance between a lean, hyper-efficient supply chain that carries no fat but is susceptible to unexpected shocks, and a sluggish, inefficient one that may be ultra-resilient but is expensive to maintain.
5) Measure the Risks Using Latest Technology
Performing regular supplier audits and measuring risks should be part of the general business practice but, until now, few companies have invested much time or money in this vital activity.
Smart software procurement choices, in areas such as business intelligence, risk assessment, and data management, will allow you to make predictive models for supply and demand in times of local, national, or global uncertainty. Effective modelling can have a significant impact on your supply chain’s resilience.
It’s widely mooted that many things in the world of business will be different after COVID-19 has run its course. Enterprises may be able to do little right now but hunker down and weather the storm, but this can also be the ideal time to make new plans for future supply chain resiliency.
(Srajan Nawal is the Co-founder and CEO at Trails Supply Chain Solutions Pvt. Ltd.)
(Disclaimer: The views expressed in the article are those of author and has nothing to do with Trails Supply Chain Solutions Pvt. Ltd.)