When the coronavirus pandemic hit Asia in early 2020, many businesses experienced major supply chain disruptions. This highlighted the need for companies to build resilient supply chains. Now, more than ever, it’s essential to make your supply chain resilient to crisis.
Pandemics aren’t the only things that can disrupt supply chains. Extreme weather can knock out transportation infrastructure or power supplies. Civil unrest can shut down operations or block transport. Changes in tariffs can upend your profit calculations. Major disruptions, once rare, have become more common. The best time to build a resilient supply chain is right now, before the next crisis strikes.
How to tell if you have a resilient supply chain
The first step to building a resilient supply chain is to stress-test your operations. In a stress test, you game out various scenarios and explore how well your supply chain holds up.
The Harvard Business Review has outlined a metric for supply chain stress testing. First, determine the time to recover for every link in your supply chain. Time to recover is the time each element will need to return to normal operations after an interruption. Next, figure out the time to survive. This is the longest that your supply chain can continue to meet your demand after an interruption in supply.
If the time to recover is longer than the time to survive, you have uncovered a weakness in your supply chain.
Your supply chain might be able to make it through minor supply chain disruptions without affecting your eCommerce sales. However, a truly resilient supply chain needs to do more than overcome glitches. You need to consider how to deal with the impact of low-probability, high-impact events. If you can make your supply chain resistant to these crises, it is truly resilient.
Strategies for making your supply chain resistant to crisis
There are two general strategies for building a resilient supply chain. One is by avoiding crises. The other is by having nimble supply chain management systems that allow your operations to recover quickly from disruptions.
Ideally, your resilient supply chain will incorporate both of these elements. Avoiding disruptions as much as possible while building capacity to bounce back is ideal.
There are several specific strategies you can use to make your supply chain more resistant to crisis. All of them require excellent supply chain management to succeed.
Diversify your suppliers
Identify multiple sources for raw materials. Buy supplies from producers in different geographic regions. Use more than one manufacturer to produce your products.
Diversification will create more complexity in your supply chain. This strategy will require you to manage your suppliers more carefully. However, the benefit of being able to keep your products flowing during a disaster will be worth it.
Nearshore your supply chain
You may not be able to find manufacturers or raw materials sources within the United States, However, if you can bring elements of your supply chain closer to home, you can improve performance even before a crisis happens. Nearshoring can reduce transit times and transportation costs while keeping production costs low.
The closer your suppliers are to your distribution centers, the less susceptible your transport chain is to disruption. If your supply does get interrupted, nearshoring may make the crisis easier to mitigate.
Standardize your components
Using the exact same parts in multiple different models will help you create a resilient supply chain. Work with your design and engineering department to identify components that can be standardized and used in more than one product.
Standardization allows you to order parts in larger quantities. That makes it easier to diversify your manufacturing or hold more parts in reserve as a buffer. And it adds flexibility to your operations. You can more easily fill demand for all your products without running out of key components.
Improve communication among all elements of your supply chain
A resilient supply chain is one in which communication travels both up and down. Make sure that you communicate with reps from every node of the chain frequently. That way, you won’t be blindsided when problems occur.
In addition, open channels of communication between different suppliers. Transparent supply chain operations and collaboration among vendors will help you adapt quickly in a crisis.
Carry emergency inventory
This is the most controversial suggestion. When you carry inventory beyond your safety stock level, you tie up capital that you could use for business development. In addition, you run the risk of being stuck with unsold merchandise that is out of date or out of style.
However, major disruptions are nearly impossible to predict. Because of this, you probably won’t be able to anticipate a problem and stock up immediately before it happens. Carrying extra stock can give you a buffer during a supply chain disruption. Yours could be the company that can provide products that no one else has in stock.
There are definitely risks to holding excess inventory. Your stress test should give you some guidance on whether and how much extra stock to keep in case of emergency.
Work with your partners to build resilience
Find out what kinds of business continuity plans your suppliers and partners have in place. Make sure your eCommerce fulfillment company has backup power and internet. Determine which manufacturers have excess capacity you can call on, if needed. Work with your transportation providers to map out alternate routes and delivery options if the usual transport process breaks down.
It’s not possible to anticipate and prepare for every crisis. However, if you build a resilient supply chain using these strategies, you improve your chance of avoiding business interruptions.
The tension between lean operations and a resilient supply chain resistant to crisis
While just-in-time operations save money, they can lead to major disruption when supply chains break down. Lean operations give you the flexibility to pivot quickly to respond to market trends and consumer demand.
But lean operations can shorten your time to survive when a supply chain breaks down. If you count on new deliveries of stock every week, it won’t take long for your shelves to empty when your supply chain is disrupted.
This hazard can affect every aspect of your supply chain. Building in extra time and extra capacity can buy you valuable margin in a crisis. Your supply chain resiliency plan will balance the extra cost of a longer inventory turnover ratio against the risk of having to deal with backorders and out of stock items.
There are no easy solutions for building a resilient supply chain. Your risk tolerance and business capitalization will inform the choices you make. The important thing is to recognize that disruptions will happen and start planning for a supply chain resistant to crisis.