Supply chains have focussed for about a decade on optimising delivered costs, improving customer service while lowering inventories. Sustained competitiveness has necessitated supply chains to become lean ,supplying goods rapidly and cost effectively across geographies to meet the ever growing expectations of discerning consumers.
In recent years businesses have witnessed quite a few disruptions Viz.Thailand floods of 2011, Japanese earthquake and subsequent tsunami, Jan’13 Dreamliner grounding globally due to lithium-ion battery overheating, Bardarbunga volcano in 2014, Chennai floods, Tianjin Port Explosion, Mumbai Port strike of 2015, earthquakes of southern Taiwan, bankruptcy of Hanjini freight liner in ’16, Hurricanes Harvey, Irma, of 2017, recent US China trade war and of course ongoing COVID19. According to a McKinsey article every year over the past several years, at least one company in twenty has suffered a supply-chain disruption costing at least $100 million. According to Deloitte’s 2017 global extended enterprise risk management survey, 74 percent of surveyed organisations have faced a disruptive event with third parties in last three years. As many as one in five have experienced a complete third-party failure or an incident with major consequences. So, supply chain disruption are real and are very expensive.
In the pressing need to become lean, supply chain’s have lost the ability to absorb impact of disruptions. Supply Chains have become lean & efficient. But have also become frail with poor ability to bounce back when and if things go wrong.
Sharing my thoughts on potential ways to increase resiliency in supply chain :
- Building in collaborative & agile planning and fulfilment capabilities : There are always multiple ways to run a supply chain given the multiple routes the materials can take while moving from supplier’s supplier to different manufacturing locations to Finished goods inventory points to end customers and consumers. When a disruption strikes, the ability of the supply chain to swiftly identify and evaluate multiple, implementable product flow paths to reach to consumers along with its financial impacts and sensitivity around what ifs of demand and supply variabilities, becomes a critical differentiator. This helps companies respond with speed and agility in keeping supply lines running with constraints thrown in by disruption. This ability to configure and reconfigure supply chains dynamically basis changing demand and supply situations by changing transportation or manufacturing alternatives required end to end visibility of demand-supply data along with strong analytics. Supply chain teams trained in end-to- end optimisation, visibility and risk and reward tradeoffs skills can help make supply chain resilient.
- Having more than one BOM /specifications: This is especially common in F&B set ups where organisations invest in having more than one formulation for a product. In situations when there is sudden and prolonged non-availability of any of ingredients of one formulation, the organisation seamlessly transitions to alternate formulation to serves their customers. Beverage companies investing in processing capability with formulations using sugars of different ACUMSA, using HFCS instead of white sugar ; Jam manufacturers using Mixed fruit jam formulation with Mango Vs with Guava ; Food companies using combination of range of flavours and ingredients for different formulation of same product and organisation building in capability to make product suitable for packaging in different pack types of PET, RGB, cans, Aluminium lines cartons are some of the examples. These might need change in label declarations.
- Diversification : According to a recent survey, post covid, about 50 per cent of organisation are doing due diligence on their suppliers’ and their supplier’s suppliers. Only 40% of this group claim to understand the extent of the effect those suppliers have on their suppliers. Having a thorough and in- depth understanding of supplier’s business, their vulnerabilities, risks and monitoring and mitigating the most relevant risks is important. To offset those risks that can’t be mitigated even by working very closely with suppliers and with best of supplier relationships, consciously de-risking by diversifying operations and implementing multi-sourcing strategies becomes a serious consideration. One needs to have similar approach on multi-site manufacturing – own or third party, investing in building more than one channel and route to market for customers wherever feasible and economically justifiable. Splitting supply chains so that if one stream fails, the other in a different jurisdiction / geography / technology can take over and continue to supply is an approach worth evaluating.
- Building Flexibility :
4.1 By standardising processes and manufacturing : Investing in a) capability to need based shift production among manufacturing locations b) having common manufacturing processes for multiple products c) having similar/identical plant designs across facilities d) using max possible interchangeable and generic parts e) efficiently making multiple product categories and SKUs on same manufacturing line, for Example – swing line used in beverage industry that can make any/all of sparkling beverages/Juices/water e) using concurrent instead of sequential processes and f) multi skilling operators, are few ways organisations build ability to handle disruptions.
4.2 Variabilisng Fixed costs : Keeping in-house only the“core” functions of organisation which are creating “differentiation” to business and outsourcing everything else (at an outcome based payout model) ideally with more than one alternative, spreads organisation’s liability and risks get shared among outsourced partners. Helps in building agility and resilience.
4.3. Through Shifting lot size : Through effective use of SMED (single minute exchange of die) , quicker manufacturing change over times and microscopic look to identify and eliminate wastes to improve lead times of each of the processes help organisations produce and ship in flexible lot sizes at an equally efficient cost structures. In disruption and uncertain times, this capability helps in keeping the supply line running and serve a wider portfolio to consumers.
- Building Partnership Networks : To have options in times of crisis, manufacturers and shippers invest proactively in building in “partnership networks”. Partnership network spans a network of 3rd party manufacturing partners, transportation providers, 3PLs and a network of technology partners. A central nodal agency becomes a single point of contact and serves as a relationship hub orchestrating connections between the organisations and various elements in the partnership network to establish right fit overcoming adversity when challenges arise. In addition to providing alternate sources of modular capacity, mature nodal agency provides a portfolio of services and solutions and help manage the network of resources, maintain processes and connectivity and ensures seamless integration of the solutions needed to maintain the resilience of the business.
- Building in Redundancy : For the risks that organisation decides to cover, building up buffer inventories provides more “give capacity” to the system. Easiest way to build resilience is by keeping more than required finished goods and raw material inventory, having additional manufacturing capacity kept ready for back up, having additional number of suppliers(and capacity), extra manpower, additional distribution channel partners ready swing to action when risk emerges. While this is an easy to do alternative, this is temporary & a very expensive way to build resilience.
- Cultural Change : Above all, building resiliency that can be harnessed in challenging times requires a culture of distributed decision making where teams and individuals are empowered to take appropriate decisions and tangible actions. An ambience where intelligent risk taking is encouraged and failure are not chastised but analysed for learnings without factoring in the benefit of hindsight. Continuous transparent communication, well informed and passionate employees, high level of trust and a risk- aware culture helps establish and maintain strong defensive layers against unknown risks and an ability to respond more quickly in the event of a severe disruption threat.
Bain’s experience has shown that investments in supply chain resilience can deliver 20% to 30% rise in customer satisfaction by reducing availability black-out situations and a 15% to 25% improvement in throughput.
There is no better time than now to strengthen resiliency in supply chains without losing the lean-ness. An essential pre requisite of investing in building resilience is to understand organisation’s value chain vulnerabilities and risks. Leadership need to objectively debate and agree on the tough decision of which of those risks organisation is willing to live with and which ones must be mitigated and invest organisation scarce resources and energies in building resilience against those identified risks.
Rajeev Ranjan a supply chain and Route to Market professional with 15+ years of leadership experience with Coca-Cola, Marico, YHS Singapore in India, China, Singapore and South East Asia. Views expressed are personal. He can be reached at https://www.linkedin.com/in/rajeevranjanko