From COVID-19 to blockages in the Suez Canal to semiconductor shortages, the supply chain has experienced nonstop disruptions over the last couple of years. With the stakes rising from temporary revenue dips to more serious product shortages, it’s time for a shift in our approach to this “new normal” of supply chain instability.
The situation calls for major adjustments to supply chain strategies, including the following:
Consider population density in sourcing. The first question you should ask when revamping your supply chain strategy is, “Where are my customers located?”
If 90% of a business’s customer base is in North America, for example, keeping 100% of sourcing in Asia simply isn’t sustainable, when considering the cost and profits loss if the supply chain breaks down so far from the customer base. The pandemic, U.S.-China trade war, and war in Ukraine are just a few recent examples of supply chain issues that have restricted goods from being delivered internationally.
Managers who have historically relied on global sourcing strategies will have to develop regional alternatives in order to survive the next inevitable supply chain crunch and continue serving their customers. The more critical the product being sold, the higher the capacity companies should consider in their regional sourcing.
Diversify and derisk: Never rely on single product sources. In addition to making sourcing location decisions based on the localities of customer bases, it’s also important to diversify your product sources. Relying on single sourcing as a supply chain strategy exposes a company to the full impact of many potential disasters, from severe weather or political instability to the compounding effects of global health crises. Risk goes down dramatically when you have multiple sources for your products, thereby minimizing the impact of localized supply chain disruptions.
Apple, for example, has an extensive network of third-party suppliers in its supply chain. The company purchases components from suppliers in 43 countries across six continents, sends the parts to factories to be assembled, and then ships completed iPhones to warehouses and retailers around the world, thereby diversifying and future-proofing its pipeline.
On the other hand, the baby formula industry relies on four main suppliers for 90% of domestic production. And when one of those suppliers has to shut down its facility, the consequences are massive. There are no alternative plants to manufacture baby formula in the U.S., which has resulted in costly emergency shipments from other countries and huge inequities that have left the most vulnerable in danger.
Make the last mile the best mile. The challenges don’t stop once products are sourced and in a warehouse. In today’s supply chain, last-mile delivery is arguably more critical than any other stage. From a warehouse shelf to a delivery truck and onward to your doorstep, the last mile is one of the best places to make gains to recoup delays that may have occurred earlier in the supply chain.
As more companies feel the pressures of booming e-commerce growth and enhanced consumer expectations, last-mile delivery will continue to evolve. Today’s consumers expect same-day delivery, as well as alternative options like curbside pickup or buy online, pick up in store. Supply chains must be nimble enough to account for multiple last-mile delivery options, and fast enough to get critical products to consumers in record time.
To do that, end-to-end visibility in the last mile is a must, but impossible to achieve if done manually. Companies such as FedEx, Target and Walmart are transforming their warehouses with the help of robotic automation and artificial intelligence, to gain better visibility, improve employee working conditions, and cut down on wasted time in the packing and delivery process.
In today’s turbulent world, businesses are often on the front lines, and play a huge part in how catastrophic emergencies are managed, and whether the impacts on customers can be cushioned. Today’s businesses must consider not only how their supply chain structure impacts their bottom line, but also how it impacts the customers they serve — especially when it comes to necessities. It’s up to us to adjust our supply chain strategies accordingly, to do our part and use businesses’ powerful influence for good.
Kishore Boyalakuntla is vice president of products at Berkshire Grey.
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