Supply chain risks are a major concern for many sectors, especially for senior management teams. If you are in charge of the supply chain, you probably think that more needs to be done to make the business more resilient.
You might, however, feel limited by conflicting priorities from your finance department and unsure of how to quantify and convince your C-level executives that trade-off choices, such as changing your supply chain network or increasing your options for multi-source suppliers, actually add value. That could force you to stick with the way you now handle supply chain risk.
However, conventional supply chain risk management techniques frequently fall short in fostering cross-functional cooperation because they rely on static and restricted sources of information. Due to the absence of a single source of truth, each team inside the organization has a unique perspective on the most crucial risk considerations to take into account. Despite the lessons we all learned during the pandemic, there is a lack of cross-functional alignment around what supply chain risk is and how to manage it. Additionally, risk mitigation is frequently reactive.
Naturally, a lot of businesses are investing in long-term supply chain planning, scenario planning, risk monitoring, and general innovation in sales and operations planning. However, many are not sufficiently focused on operationalizing risk reduction and are instead too preoccupied with maximizing inventory levels and balancing supply and demand to achieve efficiency.
If you’re tracking the whereabouts of the electronics parts and other items you bought in the supply chain with a supply chain risk monitoring solution, you could feel a bit better. However, the first wave of supply chain risk monitoring systems places too much emphasis on where electronics parts and other ingredients that companies need to make their goods are located.
Seeing “dots on a map” helps you figure out where these objects are. But, if a severe weather occurrence, a labor strike, or a ship trapped in the Suez Canal prevents or delays your delivery, you have little control over risk. You can then try to get your delivery loaded onto a different ship or container, although that might take weeks, or you can buy more parts. Missed chances might result from your production coming to a complete stop as you wait for the golden screw.
Businesses are also attempting to mitigate supply chain risk by putting China+1 sourcing techniques into practice. According to Jabil’s 2024 Supply Chain Resilience Survey, 10% of supply chain survey participants are creating such diversification plans, while 63% have already put them into practice.
Following the epidemic, China+1 initiatives revealed the significant reliance on China for sourcing essential parts and materials, the emergence of new rules that make doing business in China more difficult, the need for nearshoring and reshoring, and the continuous conflicts between the United States and China. They were also a fantastic beginning. However, these are only a small portion of the more complex trade-off choices that supply chain managers and their companies may have to make.
Organizations are ill-prepared for the next big upheaval as a result of the scant attention paid to supply chain resilience and the ensuing low degree of digital maturity for global manufacturing.
Here are three methods to improve your supply chain resilience, move out of firefighting mode and become more proactive, and expand on the risk-mitigation techniques you’re already doing.
From the beginning, include resilience. You must include resilience into your operations from the very beginning of the new product design process if you want to maximize the return on your risk management investment. Software engineers are the ones who first adopted this “shift left” strategy, testing products early to identify and correct flaws and faults before software is shipped. However, “shift left” is also very beneficial for supply chains.
Given that 80% of the risk, cost, and sustainability of a typical hardware product are fixed at the design stage, anticipating supply chain issues is essential in today’s environment of catastrophic weather events, political strikes, escalating geopolitical tensions, and other hazards.
You may create buffers to assist absorb system shocks from both sudden occurrences and gradual ones by including resilience into your design by using new intelligence to evaluate risk and then finding alternate suppliers and parts up front.
Extend your sphere of influence. Professionals in supply chains and other areas engaged in the launch of new products have a lot of opportunities to increase their sphere of influence both inside and outside of their companies.
Internally, that entails advancing the discussion on how your business assesses and continuously gauges the health of upcoming products by looking at factors like supplier and financial health, regulatory compliance, trade considerations, and adaptability to new markets and regions. Teams from engineering, finance, procurement, and supply chain should participate in these discussions; they should all have access to the same internal and current external market data.
Working together with important suppliers can also help you increase resilience and reduce risk. This may entail figuring out where the supplier is constructing new plants and coordinating on a China+1 strategy, using the market knowledge that suppliers possess to gain a more comprehensive grasp of the market, or establishing direct, long-term contracts with suppliers, as several significant automakers have done.
Take fresh approaches to interacting with your suppliers. Collaborating with your primary suppliers offers a plethora of extra opportunities for creativity.
Asking whether there are components that are comparable to the ones you’re seeking to purchase but have a lower risk score might help you better mitigate your risk. These insights can assist you in determining which components are low risk from the standpoint of supply continuity and are not subject to possible market competition for high volume end markets like consumer electronics or artificial intelligence data centers. As a result, these components may be expensive or challenging to compete for in the future.
Distributors and suppliers with extensive knowledge of international markets can exchange such knowledge and perhaps assist you in reducing supply chain risk. However, these discussions only take place when you have strategic alignment outlining your aims and objectives and seeing chances for further value generation, moving beyond transactional connections.
It has been advantageous to reach the pinnacle of supply chain and associated risk awareness. But only if businesses take the appropriate next actions will awareness result in greater resilience.
After the epidemic, leaders from a variety of businesses are now taking a breather. Businesses still haven’t thoroughly considered the underlying reasons and how to make sure we never find ourselves in the same predicament we were in at the beginning of the epidemic, despite the enormous lessons learnt at that period.
The time has come to move beyond risk monitoring and take a closer look at how to operationalize decision-making across departments, simulate and quantify the possibility to avoid risk, and increase business resilience by lowering the supply chain risk that your firm and its products face.