Transportation and logistics disruptions dominated 2021 and show no sign of dissipating this year. Businesses must look for ways to build supply chain resiliency to combat the problem. And while extending hours at ports is helpful, it's not a panacea to the complex issue.
So, what can organizations do? One critical component is to create business continuity plans with key suppliers to mitigate the risk from the ongoing uncertainty and fluctuations in consumer demand.
The overarching goal of these plans is to help organizations navigate uncertainty with minimal disruption. However, creating an effective and robust framework is not easy. It requires a forensic analysis of the entire supply chain ecosystem to understand the impact on the business if a supplier or logistics provider fails.
In order to optimize continuity planning with suppliers, organizations should consider the following recommendations.
Evaluate your supply chain. The first step of continuity planning is understanding every factor that impacts your ability to get products to customers. In addition, you need to determine what you can and cannot control within the supply chain so you can implement a plan to deal with the components you are able to influence. Then create a ranking index that grades every element based on its impact on operations. From there, determine the strategy for dealing with the different rankings. For example, a tier 1 component is a part that has a major impact on your supply chain and requires more checks and balances to ensure you can navigate around any issues. Taking a systematic approach allows your continuity plans to scale and adapt.
Embrace diversification to mitigate risk. Organizations need to adopt a diversification strategy across the entire supply chain. The old days of relying on a handful of primary suppliers with one backup is no longer sufficient. The index ranking will drive the level of diversification. For a tier 1 item, this might mean:
Increasing the number of suppliers and sourcing regions,
Upping the percentage of coverage overlap, or
Increasing buffer stocks for critical components.
This is a significant realignment from running lean and following a just-in-time inventory strategy. For example, if you rely on one shipping method or location, the associated threat from the current global uncertainties puts an organization at too much risk. Instead, hedging and diversifying reduces the chance of incurring problems or at least minimizes the impact.
However, embracing a diversification strategy requires an investment in time and capital. Increasing the number of suppliers and adding warehouses in multiple locations could add operational costs. This investment should be compared to the financial impact of relying on one supplier or location and what happens when it is impacted by events such as congestion, weather extremes, natural disasters, and pandemics.
Diversification is about spreading risk and advanced planning for how to manage the inevitable issues that occur. Robust continuity planning is almost impossible without it.
Infuse technology to gain visibility. Visibility is another vital part of being able to optimize business continuity. To achieve this requires infusing technology through the end-to-end supply chain. The increased visibility enables organizations to quickly make more informed decisions, helping minimize the impact when disruptions occur. Over time the insights allow businesses to understand possible exceptions with suppliers and then manage them to mitigate the impact. Digitizing everything enhances continuity planning as organizations are more agile. However, this requires organizations to shift from viewing technology as a cost to a strategic investment.
Rethink shipping. The past two years have proven that relying on limited shipping options is a recipe for disaster. From port congestion, to vessel capacity, to a shortage of workers due to the pandemic, shipping is a significant bottleneck. Organizations need to look for ways to improve reliability as well as accurately forecast shipping costs. Rather than rely on standard pre-pandemic strategies, start evaluating different modes of transport, differentiated/premium services offerings, various ports of entry, and lastly the contract performance of your logistics partners. Diversifying shipping strategies injects more flexibility, allowing organizations to manage around disruption and deliver to their customers.
Resource to support diversification. Another aspect of continuity planning is ensuring that there are enough people to handle the increased number of shipping exceptions as well as the complexity resulting from diversification. There are more elements to contend with by creating more flexibility to reduce risk. However, it's not just about adding people-- technology plays a vital role in helping drive down exceptions and efficiently manage the business.
Technology plays a vital role in helping drive down exceptions and efficiently manage the business. However, there will still be exceptions and teams need to be appropriately resourced and structured to efficiently communicate, share relevant information and make quick decisions across multiple time zones. By adopting a diversification strategy to reduce risk, organizations must ensure enough resources to manage the increase in variables.
The current unpredictability and volatility are not going to disappear suddenly. This has put supply chain contingency plans in the spotlight. Following the above recommendations will help deliver the flexibility needed in a volatile world. By hedging and diversifying, it delivers operational efficiencies and ultimately provides businesses with a competitive advantage.
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