The COVID-19 pandemic created one of the largest disruptions to the global supply chain in recent history. Companies scrambled to meet surging demand on everything from personal protective equipment to toilet paper, while lockdown orders shuttered factories and further exacerbated product availability issues. After decades of optimizing supply chains to minimize costs, reduce inventories and maximize asset utilization, these practices had removed the buffers and flexibility that could absorb disruptions.
In light of recent events, it is important for organizations to reexamine their approach to supply chain management to ensure their network’s resiliency.
Identify Undetected Risks
Most manufacturers rely on suppliers and subcontractors who focus on just one area, such as a vehicle manufacturing outsourcing its touch display screens. This approach gives companies more options for their inputs and the ability to tap into the latest technology. But if that supplier only has one production facility or concentrates all its operations in a single country, your supply chain is more vulnerable to disruptions.
Mapping your entire supply chain beyond the first and second tiers is a time-consuming, but worthwhile exercise. The map should include distribution facilities as well as transportation hubs. Once you have created the map, classify suppliers into low-, medium- and high-risk categories. To choose the appropriate categories, apply the most relevant metrics to your business, such as revenue impact, time for a supplier’s factory to recover from a disruption, and the availability of products or inputs from other sources. With the risks in your supply chain identified, you can put plans in place to address them, such as diversifying alternate sources or stockpiling key materials.
Diversify Your Suppliers
Semiconductors have been making headlines for their widely reported shortages affecting everything from car manufacturing to telecommunications technology. As chip manufacturers struggle to keep up with demand and vehicle companies are forced to scale back production, the need to diversify suppliers becomes increasingly apparent.
A single factory, supplier or region is susceptible to the same risks, such as a natural disaster or trade war. Starting with your highest risk sources, begin to identify other suppliers who can fulfill your needs. Broader geographic diversification can be beneficial when major events affect multiple countries, such as the Ever Given container ship that recently blocked the Suez Canal or the 2004 tsunami that devasted many coastal nations in Asia. During the pandemic, savvy leaders at Caterpillar pivoted their manufacturing to alternate suppliers and spent more to ship products and components via air freight to fulfill customers’ orders.
To protect against disruptions, supply chain leaders should consider developing a regional strategy in which a substantial number of key inputs are produced in the region where they are used. For example, a French clothing company that uses low-tech, labor-intensive practices may want to host some of its production in an eastern European country versus only operating in China to mitigate the effects from a regional event. Arrow Electronics located its production and design close to where its customers are, which not only helped it cope with the pandemic, but also alleviated difficulties with tariffs.
Leverage Process Improvements
Assessing and modifying your supply chain is the ideal time to implement innovations and improvements to your processes. Look for ways to streamline production and create more efficiencies, such as by using less space or labor for an assembly line and boosting productivity. Since the original design of your supply chain, what new technologies have been developed that could help lower costs and make your production more flexible? This is also an opportunity to make your factories more environmentally friendly through automation, new processing technologies, continuous-flow manufacturing, and 3D printing.
A survey by the Journal of Accountancy found that the pandemic disrupted 78 percent of supply chains. In this new reality, it is essential that organizations rethink their supply chain strategies to sustain everything from minor challenges to future global events.
Ready to improve your organization’s supply chain logistics? The Institute for Defense and Business offers several programs that can improve your understanding of logistics and the supply chain. LOGTECH Advanced explores strategies to increase agility and maintain relevancy despite changes in the global, economic, and business landscape. Additionally, you will effectively learn how to align people, processes, and technology to facilitate organizational and cultural change. The eIDB: LOG 21 covers technology and innovation, logistics risk, and process analysis. Its benefits include learning to maximize results for logistics operations by applying best practices and innovative thinking.
About Institute for Defense and Business
The Institute for Defense and Business (IDB) delivers educational programs and research to teach, challenge and inspire leaders who work with and within the defense enterprise to achieve next-level results for their organization. IDB features curriculum in Logistics, Supply Chain and Life Cycle Management, Complex Industrial Leadership, Strategic Studies, Global Business and Defense Studies, Continuous Process Improvement, and Stabilization and Economic Reconstruction. Visit www.IDB.org or contact us on our website for more information.