Covid-19 caused massive disruption to global supply chains. This isn’t the first time businesses have experienced disruption and it won’t be the last.
How can you ensure your supply chain not only remains strong now, but is resilient and adaptable to change in the future?
Take a Fresh Look at Your Business
For the past several decades, companies have been focused on creating a lean operation to reduce costs and increase efficiency by centralizing production in low-cost regions of the world. This strategy has resulted in extremely complex supply chains that physically span the globe.
Companies have also focused on maximizing efficiency through a just-in-time inventory strategy. Inventory is expensive and wasteful; it can spoil or become obsolete, and producing it takes money and resources. Then, it just sits around taking up space rather than going out the door earning profit. Utilizing a just-in-time approach increases efficiency through the minimization of inventory through a timely and efficient logistics process.
These strategies work well when all the pieces are operating smoothly. As we’ve seen in the wake of the coronavirus, however, the system breaks down quickly as soon as just one of the pieces in the supply chain is disrupted. In the future, finance, operations, procurement and supply chain leaders need to look beyond mere expense-minimization strategies and consider the financial cost of a potential disruption in their business.
Have an Actionable Contingency Plan
The global pandemic exposed serious flaws in many companies’ supply chains and reinforced the need to mitigate risk by putting a supply chain contingency plan in place. As manufacturers have had to shutter their factories, businesses working with them have suddenly realized they knew too little about their Tier 1 suppliers, and suppliers further down the chain.
The first step in developing this plan is to complete a comprehensive analysis and thorough mapping of your supply chain. Such mapping, however, goes beyond merely identifying the company’s suppliers, it must also determine the physical locations of the suppliers’ plants and warehouses. Once these facility locations are identified, the company should use its bill of materials (a listing of the raw materials, sub-assemblies, components, parts, etc., used to manufacture a product) to identify which products might be affected by a shutdown at each supplier location.
With this information in hand, the company can then begin purposely building redundancies in its supply chain, which provides flexibility for pivoting manufacturing capabilities and logistics sourcing as needed. Such a plan provides better visibility into the structure of their supply chain, so that when a disruption occurs, they have the information they need at their fingertips instead of having to scramble—wasting valuable time and resources. By developing a contingency plan, your company will know exactly which suppliers, sites, parts and products are at risk, which puts them in a good position to quickly secure constrained inventory and capacity at alternate sites.
Once developed, your supply chain plan should be a living, breathing, fluid document. It’s wise to revise this plan as often as needed, such as when there are any major changes in operations, suppliers, customers or technology.
If you’d like help analyzing the risk in your supply chain, contact your CSH advisor. We have operations and supply chain professionals ready to provide assistance.