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The importance of a resilient supply chain

Jonas Mehrhoff
| October 20, 2021 |
4 min read

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Resilience, the buzzword that has recently become all the more relevant and important in the running of modern-day supply chains. Even the President of the United States has spoken about the need to strengthen the resilience of supply chains.

In this article, we examine the importance and need for a resilient supply chain.

 

Importance of a resilient supply chain

COVID-19 exposed to the world how flimsy and fragile global supply chains really were. Events like the Ever Given which was stuck in the Suez Canal for 6 days choking trade flows on both sides of the canal also showed the weaknesses in global supply chains.

As global supply chains involve hundreds of stakeholders, depending on the type of industry and a myriad of activities, it is prone to disruptions, creating problems for companies and consumers. Disruptions in supply chains can occur in various forms such as Economic, Trade, Political, Climate and Digital all of which will negatively impact operations leading to an increase in the price of products and lead times.

 

 

Supply chain disruption can be due to companies

  • Not being prepared
  • Not flexible and agile
  • Not having a wide range of suppliers
  • Not having supply chain visibility
  • Not being digitally enabled

 

Supply chain disruptions that were not spoken about much in the past seem to have become more probable especially in the last couple of years. Not just private supply chains, even Governments around the world seem guilty of being unprepared for the recent disruptions.

 

The US was heavily reliant on other countries for a wide range of products including products that were critical and crucial to the American consumer and industry.

 - Post pandemic research by McKinsey

 

It revealed that the US-sourced a broad range of essential goods from Wuhan, where COVID-19 is said to have originated. These goods include key pharmaceutical ingredients and antibiotics, masks and personal protective equipment, and automotive parts all of which were in extremely short supply when the pandemic hit the rest of the world.

 

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Data from UN Comtrade showed that

  • China and India exported 42% of global antibiotic ingredients with China exporting 75% of streptomycin and 52% of penicillin.
  • Taiwanese exports of electronic integrated circuits (semiconductors) account for 43% of global value
  • Taiwan and South Korea produce most of the world’s advanced chips
  • China exports three-quarters of all personal computers and two-thirds of all mobile phones globally
  • In total, around 180 products with a value of around $134 billion are exported almost exclusively by a single country

 

Naturally, supply chain disruptions from any of these countries could lead and have led to global bottlenecks. Companies and countries alike are waking up to a new reality that they have to build resilience in supply chain for the company and the country to sustain themselves. The US Government has taken steps to review national supply chains while private sector companies have also gone back to the drawing board to enhance their supply chain and create resilience.

Governments in India, Australia and Japan have learnt some harsh lessons from the pandemic; that dependence on a single source of supply is very risky to a country. To mitigate these risks these countries announced the creation of the Resilient Supply Chain Initiative (RSCI) highlighting the need for regional cooperation on supply chain resilience in the Indo-Pacific region. As part of this, they have encouraged businesses to spread out their production plants to other countries in the region. This enables them to diversify procurement and reduce the risk of supply chain disruption affecting all their suppliers.

Another example of supply chain disruption due to unpreparedness is the congestion issue at US ports which has caused steep increases in ocean freight rates, severe container shortages and unhappy customers. While the current issues may be due to the increased demand by the US customer, it is also being attributed to the lean method of working in the Just in Time supply chain model, which seems to have been rendered invalid in the current situation.

 

Actions and benefits of a resilient supply chain

Supply chains being complex networks, any failure in one link creates vulnerability throughout the chain and companies need to create and nurture resilience in supply chains so they can be proactive, rather than being reactive in addressing these vulnerabilities.

 

Production-min

 

Actions that can be taken to create and nurture resilience in supply chain include

    • Understanding and analysing the risks that supply chain faces both upstream and downstream;
    • Developing focussed and specific mitigation strategies for the risks identified;
    • Using data analytics effectively to monitor and manage risks from a centralised location to avoid duplication and ambiguity;
    • Avoiding tunnel vision and looking for long term benefits to eliminate potential threats through better strategy;
    • Being transparent with supply chain partners in terms of the mitigation steps and what is expected of them;
    • Learning from mistakes and creating sets of best practices based on the past responses and the current data available

 

A resilient supply chain allows companies to adapt to global events proactively and have the capability to adjust schedules to accommodate customer requirements. This includes being able to collaborate with vendors and customers effectively using integrated systems including adjustments made to the supply chains for better control.

 

Key takeaway

While the digital transformation of supply chains has been on the cards for the last few years, COVID-19 and its impact have accelerated the pace at which the industry is transforming and has forced supply chain managers to reimagine and reengineer their supply chains quicker. This impact has challenged supply chain managers to advance the digital agenda of their supply chains and build resilience to face the potential disruptions of the future.

 

The majority of the respondents recognised that domestic sourcing would have an increased impact on decision making although only 27% of respondents think that their customers are specifically interested in locally sourced and made products, whereas 45% say that their customers care more about the price than where the product originated.

 - Gartner’s 2020 Future of Supply Chain Survey

 

The priority for supply chain managers now and in the future is to ensure that their supply chains have a good balance between being resilient and cost-effective while also being agile to meet growing customer demands. While most supply chains in the past were designed for cost efficiency, the future supply chains will have to balance resilience, agility, cost-effectiveness, speed all aimed at customer satisfaction in supply chain.


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