Developing resilience in your own supply chain
In the good old days, supplier relationships were stable and regional. Exchanges were direct and fast. Then came global sourcing, supplier networks, outsourcing and just-in-time deliveries. The vulnerability of the supply chain to disruptions grew, and buyers increasingly became troubleshooters. The first spoke, positively, of agile supply chains, but most warned of the consequences. However, the last three years have shown how vulnerable our supply chains really are. As a countermeasure, we now speak of supply chain resilience; we continue to speak of supplier and risk management.
Resilience comes from human psychology and describes the adaptability of behavior due to problems or changes. Triggers can be trauma, illness or stress, some people respond more robustly, others need help to adapt.
Resilience in the supply chain
Applied to a supply chain, we talk about resilience and recovery (restorative capacity) of a supply chain. A simple example: a port is closed for a certain period of time due to a technical failure, say 4 weeks. The resilience of the supply chain would be given if either there was enough inventory to bridge the 4 weeks or alternative supply chains could step in. In this example, the recovery time is the time until inventory and supplies are back on target or the time until the alternative has stepped in such that there is no impact on the company’s own production.
Derived from this, two insights are important for purchasing: what is the risk to the company in the event of a supply chain failure and what is the recovery time in the event of a disruption?
Translation into risk management
Translated into risk management, we talk about the probability of occurrence and the possible costs in case of occurrence. Of course, this has to be evaluated differently for a supplier in Asia who supplies important electronic components in single sourcing than for the supplier of plastic injection molding from the region. In the extreme case of the second, it is a matter of relocating a mold; in the first case, it is a matter of establishing a new supply chain.
Assessing supply chain resilience is only possible with continuous supplier and risk management. And this requires supply chain visibility. Just a tier-2 view of the 10 top-selling suppliers is a challenge for many purchasing departments. Those who order their electronic components in Germany are most likely not aware of the upstream supply chains. Where is purchasing done, where does the assembling take place, how does the component get to Germany and is there a buffer stock? Many questions that are often not answered.
If there is no supplier or risk management system from which clear objectives for material group management have been developed, it is difficult to make statements about the resilience of a supply chain. Then we are back to the troubleshooter: event occurs, one tries to determine the severity of the disruption (where do the products flow in?) and then hopes for a short recovery time. And, of course, do it agilely and tomorrow.
You and your supply chain are resilient. If not, we have ideas and methods to get their supply chain on track. And don’t forget about sustainability and supply chain due diligence laws. This is also important for supply chain resilience.