Executive Summary
A resilient supply chain can be described as the one that is prepared for unforeseen disruptions and is able to react and recover fast after the disruption. Procurement and supply chain professionals have faced a series of ever-more-frequent global and regional challenges in recent years, from natural disasters to escalating trade tensions between major economic blocs. It is likely that supply chain risks will continue to rise.
The COVID-19 pandemic disrupted supply chains across different industries worldwide and has exposed the fragility of today’s long, cost sensitive supply chains. It served as a wake-up call for executives to consider actions to build supply chain resilience that balances the needs to be “just in time” and “just in case.”
Insights for What’s Ahead
- Supply chain risks will intensify amidst growing global uncertainties. Continuing a trend observed over the last few years, supply chain risks caused by proliferating global uncertainties—economic, environmental, geo-political, technological, etc.—will become more frequent and more severe. The recent blockage of the Suez Canal, which cost an estimated US$ 6-10 billion in global trade per week, is just one example.2 For companies, financial value at risk is already high and is set to increase. Developing an understanding of the key risks in supplier networks, together with the likelihood and impact of the potential failures they could cause, is critical to success.
- Future supply chains need to be efficient, resilient, and take sustainability criteria into consideration. Supply networks play an important role in company value creation. In the past, many companies undertook continual supply chain optimization, which was generally an exercise in balancing the trade-offs between the goal of lowering costs while maintaining flexibility. The traditional approach to managing supply changes needs to be reviewed carefully and adapted to new global scenarios. Diverse, fair, and environmentally friendly supply chains can enhance resilience along with having broader societal benefits.
- Agility is at the heart of a resilient supply network. Agility is the ability to respond swiftly and effectively when disruptions happen without significantly increasing operational costs. Companies will need to build the right level of flexibility and redundancy to absorb disruptions and adapt to possible future changes. Achieving this balance, at optimal costs, is not straightforward. Supply chain executives will have to manage multiple interconnected priorities. Companies that can build resilient supply chains, which can withstand a range of disruptions, will accrue competitive advantage.
- ‘Value at Risk’ can help prioritize resilience efforts. Supply chains are complex and interdependent. Prioritization can help companies focus on the suppliers that have the greatest potential impact. In this regard, the ‘value at risk’ (VaR) approach—a measure to assess potential financial losses—can be more meaningful than volume of sales or spend metrics to understand the risk exposure and guide mitigation efforts. VaR insights enable supply chain managers to focus resources on improving adaptability where it matters most, and appropriately manage the contending demands of reliability, responsiveness, cost, and asset management efficiency.
- Harness digital technology’s potential to achieve supply chain resilience. Supply chain networks are complex, and very few organizations can trace their supply chain beyond tier 1 suppliers. Automation and information technology systems are keys to success. Companies should consider how they can invest in digital tools to increase supply chain visibility, improve decision support with data analytics, and build resilience. For example, emerging digital technologies such as advanced track and trace, blockchain, and predictive analytics based on machine-learning and artificial intelligence can help improve visibility across an entire supply network. Digital tools can also be deployed to undertake scenario planning. Companies can start by piloting small projects to assess potential benefits and resource requirements.
- Resilience in supply chain leaders is as important as resilience in the actual supply chain. Supply chain leaders should convince and educate the executive team about the benefits of a more resilient supply chain. Within their own teams, they need to increase their commitment to assembling the diverse talent needed to foresee and navigate a more uncertain global business environment. Growing complexity is driving a need for a deeper understanding at the domain level (i.e., at company and location levels) of how supply chain networks operate and where the balance points are between efficiency and risk.
- Incorporate supply chain risk and opportunities in board discussions. There are usually several ways in which management can engage boards on supply chain issues, so that, at a minimum, they are not caught off guard when a crisis occurs. This includes incorporating supply chain matters in annual business plans, in risk “heat maps” and other assessments, and in board-reviewed disclosures, such as the risk factors section of Annual Form 10K disclosures in the US.
