Covid-19 has been a good lesson for most companies to bring to surface the vulnerability of their supply chains. However, we have many other events including recent tariffs and trade wars, economic downturn of 2008, and tsunami in Japan. In addition, companies face supply chain issues due to demand fluctuations, supply disruptions and transportation issues almost on a day to day basis. Resiliency of your supply chain implies your ability to withstand such events, big or small. Your resiliency depends on many factors. First and foremost, it is heavily reliant on the design of your supply chain.
A good design that considers diversification, multi-sourcing, supplier participation and regional susceptibilities is the best way to prevent undesired outcomes. In order to be more pro-active when the next event arises, start examining the weaknesses in the supply chain and your suppliers, and strengthening them by creating parallel paths. This is a process that we refer to as supply chain parallelization as opposed to having a supply chain which is heavily sequential and easy to break.
Amongst the steps that can be taken in addition to parallelization, we recommend understanding the vulnerabilities of your inventory position in case of demand and supply fluctuations. Is your focus cost minimization or resiliency or both? If the latter, then it makes sense to pay the premium to adjust inventory and buffer levels in the right places in order to mitigate the risk. Treat this as an insurance premium that may not be needed for a long time but it is vital when the time comes. There are many prescriptive techniques to adjust inventory levels in order to ensure the desired service levels by customer and product. Using these techniques with the knowledge of probability of occurrence of events, one can have extraordinary protection.
Another way of looking at this is what the cost of not being resilient is. Clearly, that depends on the type of industry and company’s ability to survive and recover and duration thereof. A pharmaceutical company, because of the nature of its products, tends to keep much larger amount of inventory than a high-tech company with short product life cycles.
Finally, digitalization and use of systems such as S&OE enables creation of digital twin of your supply chain. Digitalization can help to almost immediately re-direct the supply chain based on what options are available and what is doable. This includes, rerouting the products through a third country, changing the mix of products essentially over night and performing what-if scenarios to have deep understanding of your company’s potential supply chain capabilities. To learn more on methods of becoming more resilient click Here.