Supply Chain Resilience
Rethinking supply chain resilience:
The COVID-19 crisis has been a moment of truth for organizations
Organizations recognize the need to boost capabilities in contingency planning
Localization and regionalization are gaining traction
Organizations are diversifying their supplier base and manufacturing footprint
Organizations recognize the need to invest in supply chain sustainability initiatives
Agility is a key area of improvement for supply chain organizations
Optimizing solely for raw material costs leaves organizations vulnerable to future disruptions
Struggled to cope with supply chain disruptions
Faced significant challenges across the supply chain in the wake of the crisis
Struggled to recover from supply chain disruption
The crisis is prompting organizations to rethink just-in-time sourcing and manufacturing
Supply chain resilience
Ramping up investment in resilience
Building supply chain resilience is a key priority in the wake of the COVID
Localization and regionalization are gaining traction
Investing in localizing and regionalizing their supplier base and manufacturing footprint
Consumer preference for locally produced products has risen in the wake of the COVID
Diversifying the supplier base and manufacturing footprint
68% Organizations are actively investing in diversifying their supplier base and manufacturing footprint
The need to invest in supply chain sustainability initiatives
Improving supply chain sustainability is increasingly critical for several reasons:
Without concrete action, it will be impossible to practically reach the goals
Agreement or the net-zero emission goals
Actions taken to improve sustainability will give organizations a competitive advantage
Consumers are changing the purchase preferences based on sustainability
A significant majority of organizations are aligned with this sentiment and recognize the importance of change, accelerate the investments in supply chain sustainability initiatives over the next three years. The key areas of focus are logistics and manufacturing
Logistics will be the top-most area of focus for improving supply chain sustainability
The Agility is a key area of improvement for supply chain organizations
Optimizing solely for raw material costs leaves organizations vulnerable to future disruptions
37% Organizations that account for the costs arising from location-based risks
Around 60% of organizations optimize for raw material costs while fewer than 40% optimize for location-based costs
45% organizations keep a firm control over costs as they seek to build supply chain resilience and sustainability
27% organizations comfortable with an increase in supply chain costs, are willing to increase their supply chain costs by 19% in the next three years to improve resilience and by 18% to improve sustainability
The crisis has brought home the importance of visibility across the supply chain
Exchange data with the partners to improve supply chain visibility
Majority plan to increase the level of data sharing with the ecosystem partners
Investments in Supply Chain
Digitization is set to increase
Supply chain digitization has wide-ranging benefits – improved customer service, cost savings through operational efficiency, increase in revenue and even launching new business models.
Increase the investments in technologies that make the supply chains more autonomous and intelligent – both of which are key enablers of resilience as they allow supply chains to sense and adapt more quickly to changes or disruptions. 47% of organizations are accelerating the investments in automation and 39% on robotics. IoT and AI are among the top focus areas, drawing higher investments considering the crisis.
Critical for building long-term resilience, such as control towers that enable increased visibility and digital twins that support contingency planning, are expected to accelerate at a slower pace than other areas. This is a gap that organizations should seek to address.
60 % organizations plan to increase the investments in supply chain digitization
How can organizations future-proof the supply chains?
Some of the critical KPIs that can be used to assess performance in these area include:
Agility: share of critical parts subcontractable in an agile way (switching flexibly between make-or-buy decisions)
Visibility: Level of inventory sharing and forecast sharing with suppliers, share of transport capacity with precise tracking
Diversification: share of strategic parts produced in multi-site (more than one site), share of critical components that are multi-sourced (as opposed to source from a single supplier/a single site)
Contingency planning: Readiness of business continuity planning and time taken for response.
Some of the questions that organizations should consider in this phase include:
Which of the products have a higher gross margin?
Are you producing such products in at least two sites?
Do any of the critical components of these products have a single supplier/single supplier with a single site?
Can you shift production to a different site in case of a localized lockdown with minimal effort?
Determine where to focus and strengthen the resilience, must inculcate resilience thinking into the entire product lifecycle:
Must start balancing the different aspects of resilience versus cost versus service levels
Done right from research and development to product design to supply and demand planning
At each stage, need to decide on the choice between resilience versus profit margin.
Sample supply chain analytics solutions
Invest in R&D to find alternate materials for critical raw materials
Some Invest in identifying and closing supply chain skill gaps
Take a fresh look at our supply network planning has greater urgency. This is regarding the way that we are allocating business to sites – assessing vulnerabilities in the network and increasing coverage and spreading capacity to avoid any bottlenecks
Build the capabilities needed to recover rapidly from disruptions
Standardize plant and process designs and material and component choices for increased agility
Foster strong relationships with ecosystem partners through collaboration and data-sharing
Disruptions such as COVID-19 are not new to supply chain organizations. In the past decade, we have also witnessed the earthquake in Japan, the Ebola crisis, and Hurricane Maria, among others. However, no other crisis has highlighted the underlying risks of current supply chains as COVID has.
Historically, supply chain organizations have been viewed as cost centers. But the global and prolonged impact of the crisis has made organizations realize the need for strengthening supply chain resilience. Building resilience into supply chains means examining diversification and localization decisions while strengthening supply chain agility, visibility, and contingency planning capabilities. Supply chain sustainability is another key area with growing importance
Determine the right mix of resilience to build into the products and revisit the supply chain strategy to ensure that resilience is embedded into research and development, product design, and planning. By focusing on building resilience comprehensively, and ensuring it is not seen as an afterthought, can be better prepared for whatever the future brings.
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InnoGlobal Business Consulting