Strategies to build a more resilient supply chain
Although an organization may regard its own supply chain as stable and secure, in an ever-changing economic landscape all supply chains are under constant threat. Investing in supply chain resilience is a necessity.
There are a vast number of supply chain threats that are a constant risk to businesses. These threats can be economic in nature, with suppliers suddenly facing energy shortages, high inflation or currency fluctuations. They may be tied to political decisions or policies, changes in government, civil disturbances, or armed conflicts. They can even result from unexpected environmental disasters, such as floods or earthquakes.
Since a healthy supply chain network is key to business operations, these threats and potential threats can pose a huge – even existential – threat to businesses. And in practice, many companies are vulnerable to such supply chain threats. In Gartner’s 2020 survey, Weathering the Supply Chain Storm, for example, only 21% of supply chain organizations expressed a belief that they currently had a highly resilient network.
Emerging from the COVID-19 pandemic, many companies have become more focused on boosting supply chain resilience and improving their ability to anticipate and mitigate disruption. The threat of supply chain disruptions continues to be high. In the coming years, supply chain resiliency is likely to be an even greater priority. Considering it now can give you a competitive advantage.
What is supply chain resilience?
Businesses have faced major challenges in the past two decades. Most recently, these challenges have resulted mainly from the impact of the pandemic and economic and geopolitical uncertainty. Across roughly the same period, customers have become increasingly expectant of continuous quality service, and less forgiving of shortages in product availability or delays in the fulfilment of orders.
Increasingly seen as a priority for businesses, supply chain resilience encompasses the strategies and techniques companies can use to fortify their supply chains against adverse conditions. By achieving supply chain resiliency, companies can ensure their ability to meet customer demands. This makes them capable of adapting more readily to unanticipated events. Thus, reducing their risk of revenue loss without sacrificing quality.
A resilient supply chain is the opposite of a lean one, in which processes are optimized to eliminate or reduce costs and waste. With a resilient supply chain, the emphasis is on having a degree of redundancy built in so that processes can continue uninterrupted despite external disruptions. While this approach may lead to higher costs, it also reduces the risk of possible breakdowns in the supply chain.
5 ways to build a more resilient supply chain
Building a more resilient supply chain is a way of protecting business operations from future unforeseen circumstances. There are lots of ways to go about it, but the following five strategies are particularly worth considering:
1. Inventory management techniques
The way in which a company controls and manages inventory is a leading factor in its supply chain’s resilience. Holding sufficient safety stock is one of the simplest ways that companies can build resiliency into the supply chain and mitigate risk.
By having enough stock to guard against unexpected delays from suppliers, a company can protect its ability to fulfil customer orders. However, the larger the safety stock, the greater the cost to the business.
Taulia’s Inventory Management solution can address this by taking ownership of nearby safety stocks, which means companies can mitigate the risk of outages without affecting their balance sheets.
2. Supplier vetting and diversification
Companies can also mitigate risk by conducting thorough risk assessments on their suppliers as part of a more rigorous supplier risk assessment. This should include evaluating the economic and political situation of the country and region in which they operate.
Also important is to optimize the number of suppliers used. While using fewer suppliers may result in lower costs through economies of scale, this approach can also lead to greater supply chain risk.
Companies can adopt strategies such as multi-sourcing to increase their supply chain resilience by building relationships with suppliers across different locations and with different risk factors. Establishing stronger and clearer lines of communication with suppliers is another factor that can help to reduce risk.
3. Improved supply chain visibility
While some supply chain risks are external to the chain itself, many others are brought about by internal inefficiencies or points of failure in supplier networks. With end-to-end visibility over the supply chain, companies will be better placed to identify any supply chain weaknesses as they arise.
Utilizing systems such as Taulia Inventory Management, businesses can gain visibility over the entire process of sourcing, manufacturing, storing, and selling materials and finished products. This, in turn, means they can spot problems in their supply chain early, giving them more time to act in a way that ensures operations will continue unfettered.
4. Better forecasting capabilities
The more effectively a company can forecast customer demand, cash flow, and potential disruptions, the better placed it will be to minimize risk and prepare for different scenarios.
Companies can therefore improve their supply chain resilience by increasing the accuracy of their forecasts for both demand and cash flow. Taulia Cash Forecasting provides a near real-time cash flow forecast by combining machine learning with current and historical data from purchase orders, payables, and receivables.
The insights better forecasting delivers make decision-making in the area of working capital management more data-led. This means businesses are more likely to have the cash they need for resilience on hand when they need it, without sacrificing growth potential.
5. More rigorous and regular risk assessments
The risk assessment process is key when it comes to preparing for potential supply chain disruptions. Risk assessments can be carried out on individual suppliers, as well as across the supply chain. The goal is to identify specific risks, the potential impact these could have on the business and the measures that should be taken to control or mitigate the risks.
To improve risk assessment processes, companies should their review supply chain risk regularly, and check that the list of potential risks being monitored is comprehensive. Companies should also ensure that their contingency plans are kept up-to-date.
Benefits of resilient supply chains
By increasing the resilience of their supply chains – working for both the short term and the long term – companies can achieve significant benefits. This is particularly true when it comes to driving efficiency improvements and reducing operational risk.
When a company focuses on supply chain resiliency, this should involve looking at the weaknesses that exist in its supply chain and devising solutions to address them. This is likely to result in efficiency gains, as companies with resilient supply chains are better positioned to meet customers’ needs when market demand shifts. According to Bain & Company, investments in supply chain resilience can deliver a 15-25% improvement in output and a 20-30% rise in customer satisfaction.
Moving away from the lean principles of minimum inventory and fewer suppliers can result in higher supply chain costs. However, it also comes with some major benefits: companies can minimize the potential for disruption, reduce the risk of stock outages, lessen the chance of being unable to fulfil demand, and reduce the likelihood of revenue loss in a crisis situation. In periods of global economic or political turmoil, these benefits are likely to be even more important.