What is Supply Chain Resilience?
Supply chain resilience pertains to a supply chain’s capacity to recover from disruptions, such as natural disasters, economic downturns, or supplier failures, while maintaining its essential functions and delivering products or services to customers. It involves implementing strategies and practices that enhance the supply chain’s flexibility, adaptability, and robustness, enabling it to quickly respond and recover from disruptions. Supply chain resilience is crucial in today’s global and interconnected business environment, where disruptions can significantly impact organizations and their ability to meet customer demands.
There are several advantages to achieving supply chain resilience. Here are a few of them.
- Business continuity – Supply chain resilience helps businesses maintain operations amid unexpected disruptions. It ensures that customers receive their products or services promptly, reducing the risk of lost sales and customer dissatisfaction.
- Reduced risk – Companies identifying and implementing strategies to mitigate potential risks are better prepared to handle unforeseen events. They have alternative suppliers, backup inventory, and contingency plans in place, minimizing the impact of disruptions on their operations and bottom line.
- Improved customer satisfaction – When companies can fulfill orders consistently and reliably, customers are more likely to trust and rely on their products or services. It can boost customer loyalty, positive word-of-mouth, and higher sales and profitability.
- Cost savings – By proactively managing risks and disruptions, companies can avoid costly downtime, rush orders, or emergency measures. They can negotiate better terms with suppliers, secure lower insurance premiums, and optimize their inventory management, all of which contribute to cost reduction and improved financial performance.
- Enhanced reputation and brand image – Customers, investors, and stakeholders value companies that prioritize risk management and have robust supply chain strategies. I can increase trust, stronger relationships, and a competitive advantage in the marketplace.
Measuring Supply Chain Resilience
When assessing a supply chain’s resilience, three key metrics come into play: time-to-survive, time-to-recover, and time-to-thrive. Below, we detail these metrics, examining their intricacies and significance.
Time-to-survive refers to the duration a supply chain can sustain operations without disruptions, even amidst unforeseen events. A shorter time-to-survive renders a supply chain vulnerable, whereas a longer time-to-survive signifies resilience. By prioritizing the increase of time-to-survive, companies can better prepare for and mitigate disruptions, ensuring operational continuity and minimizing potential losses.
Time-To-Recover (TTR) refers to the duration required for a supply chain to restore normal operations following a disruption or disturbance. A shorter TTR enables companies to mitigate financial losses, uphold customer satisfaction, and safeguard their reputation. Moreover, it showcases a company’s agility and proficiency in promptly addressing unforeseen events, rendering them more appealing to customers and stakeholders.
Time-to-thrive measures a supply chain’s ability to swiftly recover and adjust to disruptions or shifts in the business landscape, minimizing any adverse effects on operations and upholding a competitive edge. A reduced Time-To-Thrive helps companies to proactively assess risks and vulnerabilities in the supply chain, enabling them to implement preventive measures and fortify resilience against future disruptions.
Building a Robust Supply Chain
A robust supply chain is imperative for businesses to endure disruptions and sustain operations. As natural disasters, geopolitical tensions, and global pandemics rise, companies must be ready for unforeseen events that could disrupt their supply chain.
Here are three fundamental aspects businesses should concentrate on to build a resilient supply chain:
Processes provide structure and efficiency to the flow of materials, information, and resources throughout the supply chain network. Companies must rewrite their supply chain playbooks and discard outdated best practices. Instead of prioritizing cost reduction, inventory minimization, and asset utilization, businesses should focus on protecting supply chains from disruptions and improving flexibility.
Key process components to focus on include:
Supply chain visibility is critical for enhancing resilience. Breaking down barriers and fostering supplier transparency is crucial for achieving end-to-end visibility. Building trust and promoting collaboration among stakeholders is also essential. Greater visibility correlates with a better ability to withstand disruptions.
Optimizing inventory strategies can enhance order flexibility and service-level performance. Key considerations include managing lead times, inventory positioning, safety stock, and localized replenishment models. These strategies ensure timely delivery of materials and mitigate unexpected demands.
Supplier Relationship Management and Sourcing
Having a well-defined sourcing strategy that considers supply chain risks, not just costs. Carefully select suppliers for valid reasons and avoid relying on a single source unless necessary. Expanding your supply network can help mitigate supply chain risk.
Identifying your company’s critical commodities ensures a steady supply and prevents disruptions. Build a strategy around them, aiming for cost leadership despite challenges like inflation and shortages. Investing in a commodity management structure can yield significant returns by securing the right components at the right time and price.
Companies should prioritize talent acquisition to prevent future supply chain disruptions. Seek skilled workers, such as engineers and procurement specialists, who can navigate challenges and keep pace with the ever-changing market trends—having the right people on board makes businesses thrive in a fast-paced manufacturing environment.
To achieve success, structure your organization effectively. Establish a commodity management team and a supplier relationship team. Commodity managers should be experts in their specific markets, focusing on short-term goals. Their constant awareness of market activities, such as new products and pricing changes, helps mitigate cost increases and component shortages.
Technology enables organizations to enhance their supply chain resilience by leveraging real-time analytics and decision-support tools. These tools provide valuable baseline data for spend, supplier, and commodity analyses.
With enriched data sets, managers can make informed decisions regarding customer needs, production schedules, and logistics and respond swiftly to market shifts.
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Different Strategies for a More Resilient Supply Chain
Achieving a balance between efficiency and resiliency is no simple task. Often, enhancing resilience comes at an added expense. However, the price of inaction can also be substantial. Supply chain managers, risk management professionals, operations managers, procurement professionals, and logistics and transportation experts can adopt these six essential strategies to cultivate stronger networks.
Inventory and Capacity Buffers
Increasing buffer capacity is the easiest way to improve resilience, whether underutilized production facilities or inventory over safety stock requirements. These buffers act as a safety net, allowing businesses to handle disruptions and uncertainties in the supply chain.
It ensures that businesses can meet customer demands even during disruptions in the supply chain. However, maintaining excess inventory can be costly, making it challenging for supply chain leaders to justify the need to the top management.
Manufacturing Network Diversification
This strategy involves spreading production and sourcing across multiple locations or suppliers rather than relying on a single source. By diversifying your manufacturing network, you can mitigate risks and ensure a more adaptable supply chain.
Additionally, it can significantly improve the sustainability of your supply chain. You can utilize regional strengths and capabilities by spreading production across different locations. Different locations may offer unique resources, skilled labor, or cost advantages, allowing companies to optimize their production processes and improve efficiency.
Multisourcing is a strategic approach in supply chain management that aims to reduce reliance on a single supplier and enhance resilience. By diversifying suppliers and distributing risks, companies can effectively mitigate disruptions and maintain a consistent flow of materials or products.
Multisourcing involves identifying and engaging with multiple suppliers capable of delivering similar products or services. It provides companies with alternative options for challenges such as production delays, quality issues, or unforeseen circumstances.
Nearshoring is a supply chain resilience strategy that involves sourcing goods and services from countries close to the home market. By choosing to nearshore, companies can reduce lead times, transportation costs, and environmental impact compared to offshoring to distant countries.
Additionally, nearshoring allows for better communication, cultural alignment, and easier monitoring of production processes, ensuring a more resilient and agile supply chain.
Platform, Product, or Plant Harmonization
Aligning these elements optimizes operations and minimizes disruptions. Harmonizing platforms integrates software systems and technologies across the supply chain, enabling seamless data flow.
Product harmonization standardizes specifications, packaging, and labeling, simplifying production and distribution. Meanwhile, plant harmonization streamlines manufacturing and ensures consistency in practices, equipment, and quality control.
The COVID-19 crisis underscores the importance of adopting a diversified approach to sourcing. However, it’s equally essential to foster partnerships with strategic raw material suppliers and external service providers to enhance preparedness and resilience for the future.
These partnerships involve sharing information, resources, and best practices, which can enhance the overall efficiency and effectiveness of the supply chain. By working together, companies can identify potential risks and develop strategies to mitigate them, ensuring continuity of operations even in challenging circumstances.
FAQs About Supply Chain Resilience
There is an increasing need to strengthen supply chain resilience due to the following reasons:
- Heightened economic uncertainty
- Escalating geopolitical tensions
- The imperative to improve operational efficiency
- Persistent transportation bottleneck
Supply chain agility is the ability to quickly respond to unforeseen changes in demand or supply while maintaining cost and quality. On the other hand, supply chain resilience involves modifying strategies, products, and technologies to adapt to structural changes.
Technology, such as Artificial Intelligence (AI), IoT sensors, and robotics can enhance resilience by:
- providing real-time visibility into the supply chain;
- enabling better data analytics for risk assessment; and
- automating processes for faster response to disruptions.
Sustainability and responsible sourcing can contribute to a resilient supply chain by promoting ethical practices, reducing environmental risks, and ensuring a stable and reliable supplier base. Businesses can prioritize this by setting standards for suppliers, working with environmental agencies and certification bodies, and training suppliers in the various aspects of sustainable sourcing.