Steps and strategies on how to build a resilient supply chain

November 2, 2021

Risk management is an initiative getting significant focus from procurement teams right now. At the heart of this is the development of resilience strategies to safeguard supply chains and ensure business continuity when challenges arise. 

Those challenges could relate to coronavirus, natural disasters, a raw materials shortage or disruptive events such as port closures or wait times. Whatever challenges your business faces, building supply chain resilience will give you a competitive advantage in your field and make decision making more straightforward when you hit trouble.

What is supply chain resilience?

It's a critical part of your broader supply chain management strategy.

How well your business - and supply chain operations - can predict, weather, and recover from unexpected, disruptive events like the COVID-19 crisis, is how resilient your supply chain is to these risks.

For example, a business that saw its global supply chains collapse and profitability plummet during the pandemic would be said to have had low supply chain resilience.

While the concept itself is simple, various factors play a role in supply chain resilience, from the quality of your supplier relationships to how reliant you are on a single source for providing specific items.

What does a resilient supply chain look like?

Supply chain resilience can look different to everyone depending on the industry in which your business operates and the stakeholders involved in your business operations. For example, a company that holds masses of stock may have a different interpretation of resilience than one reliant on getting physical products on a shelf "just in time."

Since early 2020, nearly every business will have experienced supply chain pressure in some manner. The impact of the pandemic on the global economy and end to end supply chains was such that even businesses considered supply chain leaders with high resilience and a robust supply chain strategy took a hit.

This guide will help you develop your supply chain risk management strategy and build resilience in whatever industry your business operates in.

How to build a more resilient supply chain

1. Identify vulnerabilities and redundancies in your supply chain

Where are the most significant vulnerabilities in your supply chain? Understanding this is vital, as taking care of the "quick wins" first can significantly impact your business operations and entire value chain.

You must recognise that vulnerabilities can exist anywhere in your supply chain. Potential vulnerabilities might include:

  • A lack of transparency and supply chain sustainability, affecting the traceability and visibility of your supply chains
  • Relying on suppliers in certain countries where pricing may be vulnerable to existing or future trade wars
  • Not making the most of tech digitalisation or the use of specific innovations like artificial intelligence (AI)
  • Relying too much on a particular supplier or distributor

Conduct a risk assessment and understand the most significant vulnerabilities in your supply chain. Unless you sell a product that uses components only available from one supplier, then you should be able to put things in place to build resilience and mitigate supply chain risk.

When assessing redundancies, what you're really doing is understanding how much redundancy you're able to tolerate. Supply chains always need some redundancy, so you have the scope to increase production if needed, but not so much that it affects productivity and profitability. Find the sweet spot for your business.

2. Talk to your supplier network and agree on expectations and metrics

Your supply chain resilience will only ever be as good as your supplier relationships. If there is a lack of connectivity between you and your suppliers, you leave an unacceptable chunk of your supply chain open to significant risk.

Your suppliers must be clear and agree to work to your expectations, whether that's around lead times for products or maintaining a sustainable supply chain.

Agree on how you will measure performance against these expectations, and commit to working with your suppliers to help them improve.

3. Use buffers of "safety stock" to avoid shortages

Such is the widespread availability of products these days that unless you have exclusivity on something, a stockout can often be the last time a customer considers buying from you.

Having a buffer of safety stock is the easiest way to build a more resilient supply chain. It means you can continue to serve customers while dealing with issues in the background. While it can be difficult to justify having stock buffers due to how much cash flow it can tie-up, it's worth doing if your business can afford it.

If this approach isn't sustainable on an ongoing basis, use it for new product launches or around seasonal sales periods. Businesses are often criticised for not having enough products and then trying to justify it by saying, "we didn't anticipate the demand."

Don't let your business be one of them.

4. Distribute physical inventory across multiple locations

If your business was distributing from a single site during the COVID-19 crisis, and it had to close due to lockdown restrictions or staff illness, you know all too well about this problem.

Having all your inventory in one place is fine when everything is working as it should. However, we're now acutely aware of the impact pandemics can have. We can also see that climate change likely means natural disasters will become more frequent and intense. As such, a single location approach isn't a sensible one, nor is it likely to be viable in the long term.

While we're talking about distributing inventory from a supply chain resilience perspective, doing so could also have additional benefits, including:

  • Expanding your geographical reach
  • Reducing shipping costs for your customers and your business
  • Speeding up shipping and fulfilment times
  • Reducing costs elsewhere in your supply chain if your warehouses are close to suppliers

5. Diversify your supply chain network

This is a great way to protect your business from disruption. As a bonus, it can even drive better performance from your supplier network too.

There is so much you can do to diversify your entire supply chain network, including:

  • Ensuring your procurement team is multi-sourcing. You'll need to ensure equivalence in standards if you're getting a handful of suppliers to provide the same thing, but the added resilience you can enjoy is worth it.
  • Consider if nearshoring is viable. Nearshoring can deliver greater resilience to your supply chains by ensuring you have localised solutions within your network. If your supply chain is overly dependent on one geographic region, the chances of disruption are higher.
  • Use multiple carriers to safeguard transportation. Logistics and distribution companies are facing unprecedented demand, and the situation is unlikely to ease anytime soon. So as well as partnering with global distributors like FedEx and DHL, leverage the skills of local distribution experts both within your supply and distribution chains to optimise your shipping strategy. By spreading your shipping needs across multiple suppliers, you'll experience minimal disruption and have to find a small solution rather than a colossal one if there is an issue. Working with local firms can also help build trust with customers and others in your supply chain.

6. Scale right technology solutions to build foundation

If you're going to invest time and resources into developing a resilient supply chain, it stands to reason that you should also invest in being able to measure, monitor, and optimise that resilience.

By using a platform that allows you to visualise supply chain resilience using dashboards, you'll have access to real-time data that will enable you to perform a range of initiatives, including:

  • Analysing how your suppliers perform against agreed metrics and standards, including supply chain sustainability and product lead times.
  • Highlighting and taking action on opportunities to optimise your supply chain resilience further.
  • Using your platform as an effective "early warning system" for bottlenecks or other issues, such as governance.
  • Reviewing your partner ecosystem to understand the strengths, weaknesses, opportunities and threats within your supply chain.
  • Giving your procurement and business operations teams the capability of stepping back and taking a more comprehensive view, rather than always working "in" your supply chain.

Can your business deal with short-term supply chain disruptions?

The reliance on supply chains throughout the global economy is such that whenever disruptions do occur, they can cause significant pain to businesses. At the same time, the disruptions themselves are typically short-term, although the effects can be longer-lasting.

When your business has a clear strategy for dealing with short-term supply chain disruptions, you help ensure business continuity now while having the flexibility to adapt to a "new normal" should disruption last for a prolonged period.

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