Five Best Practices to Improve Your Organization’s Resilience
As we’ve learned the hard way, many supply chains lack resilience and are easily disrupted by unexpected events.
That the COVID-19 pandemic is causing serious and lasting disruption to supply chains across all industries is not in dispute. However, epidemics are just one of the unexpected events that can hit organizations. Natural disasters, terrorist attacks, cyber attacks, trade wars and suppliers of essential commodities falling into distress have all negatively impacted supply chains over the past decade.
Supply chain disruption is a constant risk, especially in today’s highly globalized age where businesses have long, complex and opaque supply systems. These structures have been cost-optimized, are lean and tailored to just-in-time standards. However, most are not designed for resilience and are ill equipped to cope with unplanned disruption.
Companies need to make fundamental changes to their supply chains, moving away from rigid, linear structures to running within nimble, connected networks by focusing on five key areas.
1. Assessment and Strategy
Conduct an end-to-end risk assessment that will stress-test the supply chain, identify critical risk scenarios and define potential responses. A market-leading car manufacturer was forced to shut down seven of its factories in Korea due to one of its suppliers being located within the Hubei province of China. Possessing multiple qualified sub-tier vendors and alternative sources in diversified locations may not have eliminated all risk, but would have allowed alternative capacity to be utilized.
2. Capability Build-Out
Invest in key supply chain capabilities, including visibility and monitoring, alternative business operating models and agile planning. A leading global active apparel company has been embracing online omnichannel development over the past five years, cultivating a new online sales channel (more than 25 percent direct sales). In addition, a focus on logistics strategy including diversifying its logistics network and last-mile partners has helped it navigate this crisis.
3. Intelligence Monitoring
Implement an early-warning system that enables a rapid early response to risks or disruptions and look for changes in demand and supply. A leading global beverage company has adopted Internet of things (IoT) and visual recognition technology to sense demand in coolers installed in convenience stores, restaurants and supermarkets. These technologies enable it to increase visibility of channel inventory and better respond to an event like the COVID-19 outbreak even if distributors cannot provide current-state forecast.
4. Operating Procedures
Put in place a Plan B for disruptive events, covering operating procedures and responses. Many global manufacturers are bracing for prolonged production disruptions due to the shutdown of factories in affected areas. When they can reopen, it’s unlikely a full workforce will return to work, so the emphasis on driving production efficiency, strong yield and high first-pass quality is even more important.
5. Major Crisis Management
Have a crisis management framework for even the most unlikely major events because predefined responses will probably be inadequate when major disruptions occur. This should be accompanied by governance procedures, a desired operating model and standard ways of working.
Preparing for Now, Next and Beyond
The COVID-19 outbreak has served as a reminder that the risk of an unexpected disruptive event is ever-present. It demands the ability to think, operate and plan in three dimensions, not separately, but simultaneously. Chief supply chain officers (CSCOs) need to understand short-term impacts and transform operations in ways that help the supply chain to function effectively, even when stressed and stretched.
Looking to the near future, CSCOs should identify how to build resilience into their supply chains based on new disruption scenarios, and making use of digital technologies such as AI, control towers and digital twins. But a forward-thinking CSCO should also be considering what’s beyond that and start to imagine how supply chains should be designed in the hyperconnected, network-based and super-fluid market of the future.
Glenn Steinberg is EY Global and EY Americas supply chain leader. The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.