3 ways to make your supply chain more resilient
Wednesday, July 15, 2020
The COVID-19 pandemic has tested the strength of supply chains around the world this year.
In the United States, the outbreak led to a spike in consumer demand for items like hand sanitizer, rubbing alcohol and other essentials, and retailers struggled to keep them on the shelves.
Meanwhile, several major U.S. multinational companies and manufacturers suspended their operations in China for weeks following a COVID-19 outbreak in the industrial city of Wuhan, where the epidemic began.
Today, as the pandemic rages on, experts say now is a good time for companies to determine how they can build more resilient global supply chains going forward.
Disruptions to supply chains can occur when unforeseen incidents like cyber hacks, natural disasters and political upheavals occur. Western Michigan University Professor Zachary Williams, Ph.D., director of the Hawthorn College of Business Center for Integrated Supply Management, advises companies to go beyond investigating Tier 1 suppliers’ vulnerabilities to disruptions and identify sub-suppliers’ vulnerabilities as well, taking steps to ensure that their company can make adjustments when necessary.
“We may know who our suppliers are,” says Williams, “but what about our suppliers’ suppliers and their suppliers? All of it becomes murky with the lack of transparency.”
As an example, Williams points out that while a company may be able to dictate the technology platforms their supplier uses to do business with them, the company might not have control over which platforms the sub-suppliers use.
“If we look at some of the major supply chains and the information breaches that have happened in the last 10 years, a lot of those breaches occurred by targeting a retailers’ suppliers’ infrastructure and their protocols which may not have been as strong. Having more transparency in the supply chain will help close a lot of those back doors.”
Get Feedback From Your Suppliers
Williams says a company or retailer is better off when it is a supplier’s customer of choice when a shortage occurs. Therefore, Williams says it’s a good idea for companies to survey their suppliers from time to time to identify problems and find out where they stand.
“When times get tight and we have a restricted supply, if I’m the supplier, I have to figure out who I’m going to allocate my resources to and those resources can be inventory, time, etc.,” says Williams. “So, if I’m the customer, it would be advantageous to me to understand if my supplier likes doing business with me.”
Review Inventory Practices
To prevent shortages in the future, companies could consider holding more safety stock, says Pedro Reyes, Ph.D., associate professor of Operations and Supply Chain Management at Baylor University.
“There was tremendous panic buying,” says Reyes. “And when you have demand that’s pretty constant, most stores today don’t carry a lot of inventory compared to 20 years ago. They don’t carry as much safety stock because they know they can replenish in couple of days.”
“The managerial question then becomes, how much to hold?” he says. “More safety stock equals more holding costs. Plus, there’s an opportunity cost. Capital that’s tied up could be utilized somewhere else within the firm.
“The next question is where in the supply chain to hold the safety stock? In the supply chain management research, we call this the ‘decoupling point.’ Where do we incur the added cost?”
Reyes says one approach would be to hold safety stock at a manufacture’s finished goods warehouse and with a quick response strategy design, as demand increases at the retail stores, they can replenish the supply chain up to the retail store shelves.
“Keep in mind that these are all managerial decisions and fundamentally address the question of how much risk in the supply chain we can allow. It’s not a simple answer. It will always be a cost-versus-cost trade-off decision, and it comes down to managing the risks in the supply chain.”
Overall, no matter how well one plans, disruptions to one’s supply chain can still happen, Reyes says.
“We can plan. We can design. We can do contingencies,” says Reyes. “But, no matter how good we are at that, there’ll always be something that disrupts us. The question is, how good are we at managing the disruption and getting things back on track?”
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