by Rina Redelinghuys, Customer Services Executive of Cquential
Until Covid-19 began wreaking its havoc, global companies have run their supply chains on the assumption that disruptions would be rare and short-lived, and that products should be sourced, produced and distributed at the cheapest locations to be found – wherever in the world that may be.
The pandemic has hit the business world with unprecedented scale and speed. It has caused the closure of businesses, the stoppage of factory outputs and disruption to global manufacturing industries and their supply networks.
Major industries have significantly been affected, including automotive, electronics, pharmaceuticals, medical equipment and supplies, consumer goods, and more. This is a result of China becoming a world production centre over the past two to three decades. When China went into lockdown, some five million companies were impacted globally. Why? Because China is the world’s leading supplier of components, raw or processed materials and major subsystems. With the vulnerability of such ultra-dependence on China now exposed, businesses should be planning on how to increase the resilience of their supply chains.
Future supply chain designs need to be monitored using new performance measures, such as:
Let’s take a deeper dive into ways you can improve your Supply Chain Resilience:
1. Source local – Shorten your supply chain
Establish production facilities with local suppliers in each of your company’s major markets. Not only does this even-out the risk, but transportation costs are lower.
Benefits of local sourcing:
- Localising your supply chain has a positive effect on the environment as it reduces the energy required for shipping, transport and storage.
- Local suppliers are typically more responsive than global ones and can speed up the delivery of products when needed.
- Localising your supply chain can significantly reduce transport costs.
- Buying local, translates into an economic boost for your community, which will also build and keep rapport with your customers.
- Face-to-face engagements build a good relationship with your suppliers, who are more likely to remember you when times are tough and the need is great.
2. Create transparency
This process involves determining the critical components required for your operations, thereafter, working with production personnel to identify which ones are sourced from high-risk areas and lack immediate substitutes.
- Engage with all suppliers, across all tiers.
- Form a series of joint agreements to monitor lead times and inventory levels.
- Use this system as an early warning alarm for interruption.
- Establish a recovery plan for critical suppliers, by commodity.
With this in place, a company will be able to identify specific vulnerabilities across the multi-tier supply chain.
3. Diversify your operations
The companies most likely to emerge strongly from the Covid-19 crisis are those that had diversified their operations and implemented multi-sourcing strategies. It has been argued that the marginal benefits of concentrating production geographically, in order to save money, are diminishing. By running a number of plants in different locations, not much is lost in efficiency, but traction is gained towards resiliency. The reasoning behind this is that the chances of all plants being disrupted at the same time are significantly reduced. Instead of being forced to scramble for products or components the next time global production lines are disrupted by a major disaster, companies that take steps to diversify their operations will rather direct their energy towards maximising the deployment of the resources still available.
4. Create redundancy
An expensive and inefficient option, redundancy in this context means keeping excess capacity or back-up across the entire supply chain in case of shock events, such as natural catastrophes and epidemics. Typically, it involves carrying extra inventory and hiring more workers than necessary. The real challenge is to find the right balance between a lean, hyper-efficient supply chain that carries no fat but is vulnerable to unexpected shocks, and a slow moving, ineffective one that may be ultra-resilient but is expensive to maintain.
5. Measure risks using latest technology
Performing regular supplier audits and measuring of risks should be part of general business practice, but until now, few companies have invested time or money in this vital activity. Smart software procurement choices, in areas such as business intelligence, risk assessment and data management, will allow you to produce predictive models for supply and demand in times of local, national or global uncertainty. Effective modelling can have a significant impact on your supply chain resilience.
How resilient is your supply chain?
Take the first step and contact one of our business development consultants at Cquential. Explore your options with one of our experts on providing remotely delivered assistance in developing new plans for supply chain resilience.