The Covid-19 pandemic has revealed a lack of preparedness to a variety of business disruptions. How do you build resilience into global supply chains? Succeeding will require businesses to embrace risk management, accelerate their digital agenda och gradually secure a diversified supplier base.
The massive disruption caused by the Covid-19 pandemic hit many industries that are dependent on suppliers in affected regions. For example, at the peak of the crises in China, delivery times for those dependent on China-sourced components doubled. A recent survey, conducted between February 22 and March 5 with 628 respondents mainly within the U.S. manufacturing and non-manufacturing organizations, revealed a severe lack of preparedness: 44% of businesses turned out not to have a plan in place to address supply disruptions.
This experience, still very much ongoing, is pushing companies to start rethinking and re-sculpting their supply chains. What are the building blocks for a resilient supply chain then? Here are three concrete actions your organization should consider reinforcing supply chain resilience in the event of future supply shocks:
Short term focus: Embrace robust risk management
There are four risk management strategies to consider:
- Scenario planning for any eventuality. The more scenarios a business can imagine, the better its chances of keeping the supply chain humming by identifying strategic and operation adjustments needed to deal with any disruptive situation.
- Map the supply chain for quick response. Businesses that can extensively map their supply chain networks can more effectively and quickly gauge the impact of disruptions and act accordingly.
- A crises command center. Supply chain command centers are typically not handling crises situations. Converting a crises command center into operations can help inform decision-making.
- Systems thinking for a holistic approach. Instead of a fragmented supply chain in which separate parts are understood and individually managed, systems thinking delivers a view of supply chain behavior over time and as a part of a wider set of networks.
Medium-term focus: Drive digital transformation
Digitally-advanced businesses have proven considerably less vulnerable to the pandemic. However, most businesses still have a long way to go; 58% of supply chain professionals say they are still in the planning and evaluation stage in their digital journeys. To prepare for the next crisis, business should embrace:
- AI, ML, and robotics. Wider deployment of intelligent automation across the supply chain can deliver more data-led innovation. Robotics can help businesses operate more efficiently by making routine operations in areas such as warehousing faster and more accurate. ML can vastly improve a business ability to use available data in areas such as demand forecasting and quality control, while continuously improving capabilities as new data arrives.
- IoT. The IoT combined with location and GPS intelligence, can offer businesses insights during a crisis by providing real-time tracking and improved routing, leading to a reduction in overall transportation lag and fuel costs. This data will help businesses map their suppliers more accurately.
- Blockchain. Distribution ledger technology, blockchain’s foundation, allows businesses to more effectively trace raw and finished products across value chains in more transparent and real-time ways.
- Analytics and big data. Applying predictive analytical tools to data gathered across the supply chain gives businesses the ability to make better decisions at every point, which could make all the difference during a crisis.
Long-term focus: Embark on diversification
Companies should rethink their global supply chains to avoid exposure to areas prone to pandemics and other disruptive events. Any effort to broaden the supply chain across geographies will require businesses to consider political, regional och economic factors – which could take some time. It’s all about diversifying the supplier horizon:
- Other options. Covid-19 has exacerbated the effects of the ongoing trade dispute between U.S. and China. It has also highlighted many European companies’ dependency on networks of subcontractors in Asia. All this have highlighted the need for businesses to look at alternative supply options closer to home.
- Explore nearshoring. Some industries are naturally well-placed to explore nearshoring. Such decisions will be dictated by the impact of total costs, which makes industries like automotive, with its high freight and shipping expenses, a viable candidate.
The time is ripe for manufacturers, logistics providers and retailers to rethink supply chain planning and execution. For more information, read our previous posts about supply chains during and after the pandemics: 3 basics in a strong digital foundation for supply chains and Creating a sustainable supply chain. Please also visit Cognizant's Covid-19 response page.