Supply chain resilience is an imperative in a VUCA world.
The tremors of recent years, from Brexit and Covid to the war in Ukraine, have prompted many companies and governments to realize how fragile supply chains can be.
In the western press these last months, there is talk of reshoring, reindustrialization, and shortening our supply circuits. For many of us supply chain professionals, this collective realization brings hope. After all, over the past decades, we’ve watched as our value chains are relocated to low-labor cost countries and become substantially more complex. We’ve seen lead times and batch sizes deteriorate due to the distances they must travel from the workshop of the world that Asia has become. Will we finally shorten, accelerate, and simplify our flows? Will we build supply chains that contribute to decarbonization and the fight against climate change?
Globalization and Supply Chain Resilience
How extensive is this trend? Will it spell the end of globalization? At the moment, we’ve seem some relocation initiatives here and there.
But when we talk in more detail with companies that have committed to strengthening supply chain resilience, we are often surprised to see that this approach can lead to more globalization — and more complexity.
In fact, reducing supply chain risk requires the creation of capacity buffers, whether purchased or manufactured in-house. For example, when you have factories in different countries and regions of the world, ensuring the resilience of production operations means duplicating production capacities, so that flows can be routed to a different site. The same is true for the procurement of materials and components: making supply flows more resilient means diversifying sources and spreading risks across several countries to cope with geopolitical uncertainties.
So, the search for resilience may lead to… more globalization, and more complex flows!
This paradox is well illustrated in a lecture by Professor ManMohan S. Sodhi at Gresham College entitled Where Is Globalisation Headed? A Supply Chain View.
The Consequences of Supply Chain Resilience
There are a few things companies can do to prevent supply chain resilience initiatives from introducing additional supply chain complexity.
- Integrate resilience into the strategic management of the company
The management team of a company is responsible for steering the business as it adapts to its environment. Resilience and continuity plans must be at the heart of this management. This requires the implementation of a management structure (a Business Continuity Department for example), an assessment of systemic risks, and investments. Implementing capacity buffers and stock buffers has a cost, and it can be counter-intuitive in a world that’s dominated by short-term productivity indicators and maximum utilization of resources… but it can be a condition for survival!
- An imperative evolution of the purchasing / sourcing functions
For years, it has been claimed that purchasing functions should think in terms of “Total Cost of Ownership” — that is, they should consider all the impacts of sourcing decisions, beyond the purchase cost paid to the supplier: lead time, transport, obsolescence risk, service risk, etc. The reality in most companies is quite different. Buyers have not been trained in the globality of end-to-end supply chain issues. They have not been trained in business continuity plans. The carbon footprint barely enters the equation. They are mostly measured on a “purchasing index.” We see very few buyers in Demand Driven training.
Buyers today must instead contribute to the development of the company’s operating model and to the design of its global supply chain. They must be trained and work closely with the supply chain teams.
- Adapted control systems
Resiliency requires end-to-end visibility of the company’s flows, the positioning, sizing and management of inventory, time and capacity buffers, and the ability to evaluate different scenarios and dynamically reconfigure them when required — all topics for which Intuiflow can provide relevant answers.