As unpredictable as the unfolding of COVID-19 pandemic has been, one thing is clear: it delivered a widespread shock to global supply chains.
When crisis hits, supply chain management is a source of vulnerability or resilience. According to a Gartner survey, only 21% of respondents stated they have a highly resilient network today, meaning the agility to confront unforeseen risks and recover operational capabilities quickly after disruptions.
Ultimately, supply chain decisions can reduce – or increase – your vulnerability to potential risks. Our next normal suggests that increasing resilience will be a priority for many as they emerge to operate in a world where disruptions are not an “if,” but a “when.”
Growing complexity requires resilient capabilities to monitor risk, mitigate disruptions, and establish business continuity. However, continuous global challenges increase supply chain risks, including ever-changing consumer habits, climate change, cyberattacks, trade wars and geopolitical and economic factors.
The ongoing volatility of these disruptions makes it imperative to optimize the performance of supply chains, which typically represent about 70% of a company’s costs. McKinsey & Company found the probability of supply chain disruptions over the course of a decade can cause financial losses equal to almost 45% of one year’s profits. Across industries, resiliency is business-critical.
The risk facing any supply chain reflects your level of exposure to different types of shocks, plus underlying vulnerabilities of the value chain as a whole. By building resilient supply chains that enable real-time responses, organizations can mitigate risks that affect business operations, reputation and ultimately the bottom line.
The Ripple Effect
Considering resilience is fundamental to a future-ready supply chain, an organization is only as good as its suppliers. The reality is, if suppliers aren’t running, the supply chain isn’t running. If you don’t have reliable suppliers, the ripple effect leaves empty shelves and empty handed consumers.
One frequently overlooked threat is supplier networks, which can exploit vulnerabilities across the entire value chain, making risk management for suppliers an essential component of resilience.
Despite increased spending on SRPM products (up 15% in the past year), 54% of executives don’t have clear visibility beyond Tier 1 suppliers. The sheer number of participating suppliers can hinder visibility and make it difficult to spot emergent risks. While fewer suppliers are easy to manage, dependence on a single supplier carries the risk of demand shocks cascading through a value chain.
To ensure resilience across your supplier network, your organization should address these questions:
- Where are the vulnerabilities in our supply chain?
- What potential risks are our Tier 1, 2 & 3 suppliers facing?
- What is the financial impact of possible disruptions?
- Are we prepared with a plan to respond when disruption occurs?
- How quickly can we respond and return to normal when a threat occurs?
To face the future, organizations need to invest in transformations that build resilience against potential fallout of disruptions. Regardless of industry, company size or business model, a deep understanding of vulnerabilities is essential to establishing supply chain resilience.
Staying Ahead of the Curve
The future-ready supply chain is a global, interconnected ecosystem that harnesses and harmonizes data across touchpoints to make the best decisions in real-time. While global supply chains have only just begun to embrace digital transformation, investments today will inevitably pay off as and when the next crisis emerges. Not only by minimizing losses but by improving transparency, boosting productivity and implementing effective risk management.
Digital transformation that links demand sensing to cognitive sourcing can help supply chain leaders prepare their organizations to be resilient and succeed during a time of constant change, fundamentally strengthening the entire industry ecosystem. There is no shortage of issues and opportunities, and with new problems bound to emerge, resilience is essential.