With some parts of the world starting to open up and others still shut down, now is the time to evaluate the steps to manage your supply chain going forward. While many industries can leverage these steps, here we will focus on consumer goods.
Over the past 20+ years, many organizations have built brittle supply chains; the goal should be to build resilient supply chains. A resilient supply chain should help an organization manage through uncertainty and disruptions in ways that yield higher performance than their competitors – through good times and bad. Our current disruption is much larger in scale than we have seen in our lifetimes, but we have seen disruptions of different sizes, different levels of regionality and globality, and many other attributes.
How can we build resilience into our business and supply chains to fare better for the next disruption?
Step 1: What are your highest at-risk components, materials, or ingredients?
Some industries call these critical components, critical supply, or strategic ingredients. Most organizations know very well what these are, but how critical can be a source of debate – not just on cost or volume; criticality may involve location, single/sole-source strategies, and a variety of other attributes. Packaging and labeling for your co-packers may be an interesting place to look. Quickly knowing what these at-risk components are and how they impact your business is a key step to take.
Step 2: How agile is your supply chain?
Here you need to understand your suppliers’ ability to serve your business based on their capabilities, capacities, sources of supply, and ability to find alternatives. One challenge is that this is usually tribal knowledge – in your experts’ heads, emails, and notes. This information needs to be made accessible in a systematic mechanism where your organization can quickly understand the sensitive spots in your supply chain.
For example, if the organization decides to offer one form of a specific product (e.g., one size box of breakfast cereal), is there enough packaging to meet demand? Can your packaging suppliers provide this one size in the volumes needed over time? Trading partners who take longer to acquire new supply represent limited agility, thus downgrading the agility of your supply chain.
Step 3: What is your level of visibility?
This is just not visibility to your key trading partners (suppliers/co-manufacturers/co-packers – tier 1), but to your next tier – visibility to their trading partners (their tier 1, which is your tier 2). Hopefully, there is solid visibility to your tier 1, but how good is your tier 2+ visibility? How do events around the world impact your business and your trading partners’ capabilities to meet your needs? Trading partners with limited visibility exhibit a potential soft spot in your supply strategy.
Step 4: What is your supply chain’s workforce strategy?
Many supply chains have come under fire for less-than-desirable labor practices such as forced labor and other harsh conditions. This is one example, but we also need to know if the supply base’s workforce is still intact.
If a factory was shut down for one month, will its labor force return? Can your trading partners still serve your needs based on workforce uncertainty? How quickly can these trading partners ramp-up a new workforce – does their workforce require special skills and/or special training/certification to be able to meet your needs? Understanding workforce issues pertaining to resilience across your entire supply base is a key lever to ensure continuity and assurance of supply.
Step 5: What is your supply chain’s potential for more disruption?
This seems obvious given current events, however, organizations need to understand what disruptions are possible – this can be based on location of trading partners, regulatory issues, geo-political concerns, and a variety of other possibilities. One key item is that no organization can prevent some disruptions (e.g., earthquakes, tsunamis, Brexit), but all can define strategies for how to manage through them and realize better outcomes than competitors. Understanding how disruptions might affect your supply base and therefore impact your business is a key to improving your resiliency.
The key to building a resilient supply chain is to understand your level of capabilities of your suppliers across five dimensions:
The big challenge will occur over the next year – or even two years as markets and capacities open up: there will be much supply/demand uncertainty and some supply/demand shocks (sudden, quick shifts).
For example, if your competitor locks in a high price for specific commodities and causes commodity inflation or shortages, how quickly can your business adapt? Will you reduce the number of end-products you sell to reduce variability? Should you lock in supply at a higher price, increasing costs? Do you exit that business for a short time until commodity price re-balancing occurs?
The answers to these questions lie in the detailed assessment of the five dimensions of a resilient supply chain.
Interested in learning how to build resilience into your business and supply chains? Join our webinar series, where some of our customers share best practices in using SAP Ariba Solutions for Direct Spend to achieve these goals.