Suketu Gandhi, partner with Kearney, outlines the consultancy's stress test for company resilience, incorporating eight dimensions and 51 variables.
A stress test for supply-chain resilience dates back to the recession of 2008-2009, when the financial sector was hit hard. That test “has stood the test of time,” says Gandhi. And it’s become even more important to apply now, when the coronavirus pandemic and consequent economic freefall are impacting every company’s supply chain.
Among the many factors that go into the test is geography. Companies need to take into consideration “the distance between what you make and what you sell,” says Gandhi. In an export-driven market, long supply chains can have a serious impact on supply-chain resilience. Yet for many years geography was ignored in factor of low production costs.
Also of importance in determining resilience is the variability and multiplicity of one’s suppliers. Merely having one supplier for a key product or component isn’t automatically a big risk, Gandhi says. But companies need to understand which producers make up the sub-tiers of suppliers. Failure to deliver one aspect of a complete product — say, the zipper on a piece of apparel — could have devastating consequences on the manufacturer’s ability to keep production going.
To mitigate the risk of supply-chain disruption caused by any number of events, companies need to embrace the idea of flexible manufacturing, transportation and distribution. Gandhi likens the picture to a human body with a strong heart and liver, but a poorly functioning lung. In such an instance, “you are at risk.” The solution lies in having backup manufacturers in different parts of the world, while ensuring that the locations in question are supported by adequate transportation and other forms of infrastructure. It’s all part of what Gandhi calls a “sensing model” for supply-chain resilience.
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