Get Ready for the Next Supply Chain Disruption
Thanks to Covid-19 almost every supply chain is being re-examined to become more resilient. But there is only so much you can do! There are external factors over which you have no control such as demand changes, up or down, tariffs or dock worker strikes! So, we have no control over these factors, however we do have ways to minimize the potential damage. Before any disruption occurs, we are in a position to evaluate the risk of a supplier or subcontractor being the weak link and do something about it. You also have control over your own operations. How resilient is it in case of earthquakes, hurricanes, commodity price fluctuations, demand changes, and of course time to recover and time to survive? Let’s do a fun exercise. Go back to December 2019 and ask yourself, what could you have done to avoid the consequences of this pandemic.
Some industries actually prospered because of the hike in demand and many experienced the harsh reality of precipitous drop in demand. What steps could you have taken to minimize the pain? Think of it as a wave in the ocean coming at you. You turn around and all of a sudden you are about to get hit. Do you go under or do you jump above it? Or do you simply flow with it? Next wave is on its way. You may not see it right now but it is in the horizon. Are you ready!
A simple way to prepare is to build a high-level network of your supply chain and assess the impact of each node and each link on your revenue: High, Medium, or Low. For example, if you have an alternate supplier to a node then the impact of that node is Low. If it is a single source supplier then what would be the impact, if it goes down for a week, a month or longer? Can you find an alternate within this period? Will you survive for a month or longer? Same analysis can be done on the demand side by examining main clients and regions and their impact on revenue. How much are they subject to pandemics, Acts of God and geopolitical changes? What would be the impact if one or more drop or increase their demand by 50% or 100%?
In addition to above, one needs to examine how much protection can be obtained by having the right inventory. Think of inventory as your insurance premium. If you need the coverage, it was a good investment, if you don’t need the coverage then your premium went to waste! The best and fastest way to do this is to run Multi Echelon Inventory Optimization simulations. Using this approach, one can see how much premium is needed to get the right coverage for an uncertain period of disruption.
Finally, there is a need to test the flexibility and agility of your supply chain. How quickly can you change from a product that is not in demand to one that is badly needed. Hanesbrands changed from hosiery to masks during the pandemic, Tesla and GM started building ventilators after a major shortage was detected. Your flexibility is dependent on your suppliers and their ability and flexibility to meet your new materials and components. It is critical to spend time on this, perhaps with the suppliers, and make the impossible possible. China built a hospital from scratch in one week! How quickly can you add capacity, change product line or come up with a new design. Can you cut that to even half the time you can today? Almost anything is possible!
Needless to say, above mentioned types of analysis should be done on an ongoing basis as your supply chain is live and changing with new products, nodes and links as well as business priorities. There are no certainties in this world other than death and taxes; therefore, we plan to minimize risk, to predict the inevitable, and to be ready.