If the past several months have taught us anything, it’s that even the most optimized supply chain can become disrupted through outside factors. The global economy has experienced unprecedented shifts which are resulting in serious supply chain challenges for many organizations. More and more business leaders are realizing that they need better risk mitigation tactics across their entire company, but especially for supply chain. Known as “supply chain resilience”, strategies to safeguard your supply chain have become more important than ever.
What is Supply Chain Resilience?
In simple terms, supply chain resilience refers to how well your business (in particular your supply chain operations) can anticipate, manage, and recover from unexpected and disruptive events (such as the pandemic or a global recession). Just like it sounds, the concept is around how resilient your supply chain is to risks. Supply chain resilience is a crucial part of your broader supply chain strategy.
Though the concept is fairly simple, several factors pay a role in how resilient your supply chain will be. Things like the quality of supplier relationships and how reliant you are on any single source will impact your supply chain resilience. Supply chain resilience will look different to companies based on location, industry, business model, etc. For example, a company that relies on a significant amount of stock to meet demand will operate differently than one that uses a “just in time” model. Most businesses have experienced some sort of supply chain stress in their history, but the pandemic and related closures impacted even the larges organizations. This highlighted the increased need for a robust supply chain strategy that includes a risk management plan and other resiliency elements. Companies without these measures were more likely to experience business-ending supply chain setbacks that they are unlikely to recover from.
7 Steps for Building a More Resilient Supply Chain
The very first step in creating a more resilient supply chain is to realize that it’s necessary. Supply chain resiliency needs to be an area of focus, even if you’ve had really good luck up until now. From there, follow these steps:
- Look for vulnerabilities. Which areas of your supply chain are most at risk if something goes wrong? Vulnerabilities can exist anywhere in your supply chain. Things like a lack of visibility and transparency into any particular area, relying on suppliers in other countries where pricing could be impacted due to trade wars, or relying too much on a specific distributor can all leave you vulnerable. Similarly, falling behind in technology innovations like AI can leave you more open to risk as well. Begin by conducting a risk assessment and think about steps that you can put in place to reduce these vulnerabilities. Unless you sell products with components only available from a single supplier, you should be able to put some risk mitigation elements in place.
- Find redundancies. Another thing you should look for in your audit is redundancies that that impact your efficiency and profitability. Every supply chain will have some degree of redundancy, but it shouldn’t affect productivity. Look for areas that can be streamlined.
- Reiterate supplier expectations and metrics. The quality of your supply chain is highly dependent on supplier relationships. Without strong relationships, your operations are likely to suffer from being open to risk. Make sure suppliers are crystal clear on your expectations and how you measure them as far as lead times, sustainability, or anything else that’s important to you. Agree on specific metrics and commit to working with your partners to improve together.
- Have buffer stock (or “safety stock”). There is such breadth of product these days, that customers don’t need to buy from a certain retailer unless they sell exclusive products. Having something they want turn up “out of stock” may prevent them from shopping with you in the future. Having safety stock available is part of having a resilient supply chian. This way you can serve customers while addressing issues in the background (without impacting their orders). Having buffers will tie up more cash flow, but it’s worth seeing if your business can afford it. Even if this strategy isn’t sustainable long-term, you may want to employ it for new product launches or seasonal sale periods.
- Have physical inventory in multiple locations. If your business was distributing products solely from a single warehouse during the pandemic – and it had to close – then you know how risky it can be to rely on one particular location. This strategy is actually ok when things are going well. The problem is when there are unexpected disruptions. In addition to helping with your supply chain, having other location options can help you to expand your geographical reach, reduce shipping costs, and get you closer to suppliers. If you’re using a 3PL, ask about their locations. How many do they have? Are any of them more conveniently located to your headquarters?
- Diversify your supply chain network. This tactic is actually one of the most important things you can do. Ensure your procurement team is multi-sourcing. Look for multiple suppliers who have the same standards. Additionally, you should consider “nearshoring”. This ensures you have more localized solutions within your network. Take precautions against being dependent on suppliers that are far away – or at least have a few of them in different areas. Finally, use multiple carriers to safeguard transportation. Logistics companies are facing unprecedented demand, so you need to take some extra steps to optimize your shipping strategy.
- Scale technology along with process. If you spend the resources to develop a more resilient supply chain, then it makes sense to invest in the right technology as well. Tools that help you to measure, monitor, and optimize your supply chain will provide data that supports better decisions. Many tools offer dashboards or other options to help visualize the supply chain. Having more real-time data enables analyzing performance and seeing areas to optimize, as well as benchmark statistics and see where you stand compared to industry baselines.
The truth is that disruptions to your supply chain can have serious consequences – even business-ending ones. Though many of these disruptions are short-lived, the pain they cause can last a lot longer. It’s never been more important to build a strong and resilient supply chain – and we can help. Reach out to our experts to talk about an optimized multi-channel fulfillment process.
