In the past few years, value chains have grown in terms of both length and complexity. It is because companies have expanded their businesses across the globe to enhance their margin. Companies that implemented a lean, global manufacturing model successfully had seen a drastic improvement in some indicators, including inventory levels and short lead times. Companies are expecting supply chain disruptions that can last a month or even longer, and they can take place once in every 3 to 4 years. Companies undergo a financial toll if some severe events take place.
Supply chains are quite resilient in the post covid-19 era
Various shocks most likely reflect the risk facing any specific industry value chain besides the dangers of a particular company or overall value chain. No doubt, technology is challenging the previous assumptions these days that resilience can only be bought with the cost of efficiency. The recent advances offer a plethora of solutions for running scenes and regulating several layers of supplier networks. It also changes the economics of production. A few manufacturing companies tend to use these when they wish to come out of this pandemic as a stronger company. In the latest memory, it can be seen that the COVID pandemic has given one of the most significant shocks.
Shocks tend to exploit vulnerabilities amid companies and value chains
Nothing is surprising to know that shocks exploit the weak spots amid the broader value chains. The organization’s supply chain is a source of vulnerability or resilience based on the effectiveness in monitoring risk, implementing risk strategies, and establishing some continuity plans. A few vulnerabilities are specific to some given industry, for instance, the perishability of food, and they are highly vulnerable to delays in delivery and spoilage.
Some challenges are faced by enterprises that face unpredictable, seasonal, or cyclical demand. Electronic manufactures also adapt to the short product life cycles, and it is out of their affordability to miss out on consumer spending spikes, especially during the summer season. How much stock a company wants to carry, the complexity of the products’ portfolio is some of the vulnerabilities that tend to be the intentional decision’s consequences.
In a given value chain, the weakness tends to stem from the supplier’s structure. The challenging networks often become opaque or some interdependencies. Ideally, a multinational company can have a plethora of tier-one suppliers from which they purchase components directly. And all of these tier-one suppliers depend on tier two suppliers.
The complete supplier ecosystem is linked with a huge company that can encompass thousands of companies worldwide provided the deepest of the tiers are included. The vulnerability varies from company to company because the supplier network is different. It is easier to manage them when it comes to spending a concentrated amount on just some suppliers. One type of structural vulnerability is a sub-tier supplier, which accounts for some amount of spending; in simple terms, you can say suppliers often supply each other. It is challenging to spot risks because a plethora of tiers participating suppliers can cause some hindrance invisibility. If suppliers are dependent on the only customer, then it can cause issues if the demand shocks cascades in the value chain. Vulnerability also includes the absence of substitute suppliers. Under some situations, suppliers tend to be limited to one geographical location because of some country’s specialization or economies of scale. The entire network can be snarled up as a natural disaster, or some localized conflict can cause some crucial shortages. In the past few years, some industries, including mobile phones, have become quite concentrated. On the flip side, enterprises, including medical services, have become relatively less.
Areas that can foster a healthier supply chain network include
- Just like businesses, the supply chain is both vast and complex. The company’s source raw materials from suppliers, and the supplier’s source materials from other suppliers and they might do from others, and it goes on. All parts are exposed to risk when one of the components is exposed to vulnerability. When it comes to managing risk, the driving need is growing complexity because you need to deeply understand the working of supply chains. The good part here is that you can ultimately take some steps to lead, navigate, and disrupt the resilience. When you focus on creating a supply chain resilience under your risk management strategy, it allows you as an organization to transform the perception of risk and instead create value.
- Understand the data- There is no shortage of data in the digital era. Thanks to technological developments, companies can collect data from almost every nook and corner of today’s world. Suppose companies choose to implement a strategic approach when it comes to managing supply chain risk. In that case, the executive can make the most data analytics to stay intact with potential issues that might just come up. Besides that, it is quite beneficial to learn about some trends from internal and external sources.
Now you must be wondering how you can create value; you can quickly generate value by isolating data where you feel there are opportunities to drive you better efficiencies. For instance, you can surely enhance your ability to cut down on costs if you choose to centralize the primary manufacturing and distribution in proximity. Besides reducing cost, you can also respond to things better and create better performance by reacting quickly.
- Manage compliance- Supply chains are becoming quite complicated these days as most companies feel that it is too much to align with rules and regulations. Above all, at times, companies even fail to understand these rules altogether beside house capabilities and resources. When it comes to adding compliance with the regulations and terms, keeping all the words can be overwhelming for sure. Businesses fall into the disaster trap because they don’t know what they need to align with.
- Mitigate and control risk- Just because leaders want to protect their value, most of them tend to negatively perceive the risk. But in reality, businesses should think about risks as a strategic element. If they manage it well, then for sure, companies have a better opportunity to create value for the organization. If you want to get done with the potential threats, then in time, you must learn to identify your real threats.
Once you know about your actual risks, you can not only mitigate them but at the same time, you can also manage them. Above all, no process is completely safe, don’t forget that. So before choosing any one method, you need to rethink everything from starting, including selecting suppliers to offboarding vendors. Lastly, when you sense the risk, you can leverage the external data to keep away the future disruptions.
- Stay nimble- As per a survey, it was found that at least 74 per cent of organizations have faced disruptive events amid third parties in the past few years. Leading businesses tend to take some time to develop and implement contingency strategies when external conditions for a change.
The companies have just started adopting a plethora of technologies, including analytics and artificial intelligence, robotics, and other digital media. As the threat of disruption is relatively high, companies need to take some steps to create resilience in the supply chains because none of the businesses is entirely foolproof. By creating value for the organization leaders are most likely to preserve.
Written By : Dr. Sachin Modgil
Designation : Assistant Professor – Operations and SCM,
Chairperson – Alumni Relations
He earned his FPM in the area of supply chain quality from the National Institute of Industrial Engineering (NITIE), Mumbai. He actively publishes, presents and participates in peer-reviewed journals and conferences. Currently, he is serving as a reviewer and editorial board member for international journals of reputed publishers from Elsevier, Emerald, Sage and Inderscience.