Supply Chain Efficiency or Resiliency

-Which Comes First?

If you lived in an earthquake zone or hurricane region, you would design your house to be resilient to these inevitable disasters. Your safety and survival come before efficiency and cost. Your supply chain is not any different. According to McKinsey, we are experiencing supply chain disruptions of a month or more every 3.7 years! In 2018 alone, the five most disruptive supply chain events affected more than 2,000 sites worldwide, and factories took 22 to 29 weeks to recover. The traditional concepts of sole focus on inventory levels, lower cost of operations and shorter lead times are not necessarily the top design choices. Supply chain resiliency is.

Supply chain planning and operation is essentially a probabilistic process. Supply chains need to be designed to reduce the risk of expected disruptions. Disruptions are caused by climate patterns, cyberattacks, Acts of God such as volcanos and tsunamis, geopolitical disputes, excessive supplier or customer dependency, regional instability and wars, financial and economic crises, cyberattacks, terrorism, and of course pandemics and meteoroid strikes. The unknown event is not if but when and which might happen and how long will it last?

The big question is your level of dependency. Dependency on a region, on a supplier or customer, on a specific commodity such as oil, dependency on weather patterns or regional conflicts. Different companies have different levels of exposure and dependency on the type of disruption. For example, economic depressions can have a significant impact on apparel industry vs. pharmaceutical companies. On the other hand, Pharmaceuticals are a lot more exposed to policy changes, hurricanes (regional dependency in Puerto Rico) and cyberattacks than many others. Identifying these dependencies can lead to a much better design of the supply chain and higher resiliency. This should be assessed by a focused team to design proper steps to be taken to mitigate the potential susceptibilities.

The design of the supply chain comes first. That is making the supply chain as “parallel” as possible rather than sequential dependencies. Parallel supply chains strengthen the resiliency. As one node or branch breaks, others can take over. Learn from the investment strategies: do not put all your eggs in one basket, diversify, diversify, diversify! This means not relying on one unique part number, not relying heavily on only one product, supplier, customer or region. In addition, many steps can be taken to prevent future disruption of the supply chain. These include audits, retrofitting to avoid earthquake and flood damage, re-design of products, reduction of regional dependency and so on. In addition to having a sound design, one also needs to have a system that can provide a digital view of the operations to predict and prevent as well as respond. This can come in the form of a digital twin and analytical techniques to evaluate the on-going changes and trends in the supply chain and pro-actively recommend strengthening the newly developed weak links and vulnerabilities. To learn more, click HERE.

Because of supply chain disruption, on average, company can expect losses equal to almost 45% of one year’s profit over the course of a decade.