By Caroline White | April 20, 2021
The past twelve months have shown us that history-making events aren’t as uncommon as we may have previously thought. An unprecedented ice storm in Texas caused hundreds of billions of dollars in physical damage and economic losses. The Suez Canal blockage by the Ever Given cargo ship led to weeks of shipping delays around the world. And it goes without saying that the COVID-19 pandemic brought on international economic stress. Events like these have massive implications in today’s world of increasing supply chain globalization. It’s not a stretch to envision a supply chain that includes raw materials from Brazil that are processed in China and finally shipped to a consumer in the United States. This level of complexity allows companies to get the best rates possible for producing their goods, but it also introduces additional points of failure. A trade restriction in Brazil or factory fire in China can spell delays or stockouts for the American customer. With large scale disruptions seemingly on the rise, our supply chains need to be robust to the unexpected.
There are two main types of disruption you should expect in a globalized supply chain: supply disruption and demand disruption. Supply disruption occurs when a player upstream from your business fails to deliver raw or intermediate materials that are used in your production process. Demand disruption occurs when a player (or a consumer) downstream from your business experiences a spike or decline in demand for a good or service your business provides. How do we prepare for and mitigate these events?
Increasing visibility into supply chain processes upstream and downstream from your business is key to managing disruption. Experts recommend moving from a transactional business engagement with suppliers to a more collaborative approach. Engaging with them to learn the risks to their business, understanding their forecasting techniques, and being notified about interruptions in advance will help reduce variability on your supply side. Moving away from simply placing and receiving purchase orders to open collaboration between you and your suppliers is the first step. A study from Deloitte found that organizations that are engaged with their suppliers are 38% more likely to find cost savings because of the communication. A similar approach should be applied to your demand side. Working with downstream players will help you prepare your operations for large changes in demand. These open lines of communication can help you and your business partners avoid the bullwhip effect when disaster strikes.
Maintaining this type of communication can be streamlined with modern software. Application Programming Interfaces (APIs) appear to be the technology that will replace the aging Electronic Data Interchange (EDI) as the method for B2B communication. The goal of these two technologies is the same: allow data to flow automatically between businesses. Setting up these lines of communication is essential to predicting disruptions. Additionally, having an up-to-date WMS will allow you to have total visibility into your distribution operations. Beyond implementing software, other strategies like collaborative forecasting and replenishment will improve collaboration. The more insight you have into your business partners’ operations, the more resilient the overall supply chain will be.
The next step towards resilience should be revaluating your reliance on just-in-time and lean methodologies. These two strategies have been hot topics in the past few years, and for good reason too. They can potentially minimize warehousing costs and reduce lead times. However, you need to consider if your operations are robust enough to continue when a supplier experiences a disruption. Finding the balance between staying lean and holding adequate safety stock will set you apart from your competitors during a global shock.
Predicting upheaval in the supply chain is nearly impossible but preparing for variability is not. Defending your operations against variability and gaining visibility to the risks of your business partners will be essential in the future of the globalized supply chain.
Building resilience into your supply chain can be difficult. Reach out to us at email@example.com to learn how we can help prepare your business for the next global disruption.
Contributor: Adam Born, Supply Chain Consultant at Bricz