Risk, Resilience and Sticky Supply Chains
Updated: Dec 21, 2021
The global supplychain crisis has triggered a strategic rethink for many companies! Placed under pressure, they improvised and remodelled to survive.
Many companies are grappling with the tar-like flow of goods and services in the countdown to the Christmas. Truckdriver shortages, reduced container capacity, and closed ports are just some of the challenges faced by those dependent on international transport systems. In the midst of the sticky supply chain chaos, some retailers have remained undetered. Walmart, Home Depot, Party City and a few others have sidestepped manufacturer-controlled deliveries with their bottlenecked shipping lines and congestion. Instead, they have done something they have never done before. They have chartered their own ships to control the arrival times of their merchandise.
Agile adjustments to business model segments have allowed them to revise vulnerable segments of their value chain. In so doing, they have secured sales in what is typically the most profitable time of the year. These companies have illustrated the risk responses that are required to remain resilient in this VUCA (volatile, uncertain, complex, ambiguous) world. Trends of globalization, lean manufacturing, and cross-boundary partnerships that once supported low inventories, outsourcing, and interconnectivity of transportation networks have given way to a new ideal. Trade wars, border controls, data sharing restrictions, and the fight for sovereign superiority (technology &healthcare) are forging a new battlefield.
Nations are grappling with trade barriers that highlight issues of overdependence on foreign partners. These supply chain bottlenecks have affected a variety of sectors such as the electronics and automotive sectors. They also come at a time when there are global commodity shortages (natural gas and semiconductor chips). Lack of access to crucial resources has created instability. Impacts are seen in astronomical price increases and the inability to purchase certain types of feedstock, food, or medication.
Traditional interpretations of resilience contemplate living in the past. Rebounding to where you were before. In a world filled with risks, stresses, and shocks, this one-dimensional view keeps a company in stasis and limits growth. For instance, the digital experiences created in response to the pandemic are unlikely to return to the normality of manual processes in a technologically driven environment. To do so would reduce competitiveness so evolving with your external environment counts.
Whilst resilience includes the ability of a system to prepare for, mitigate or prevent negative impacts known as absorptive capacity (OECD), there is a need for adaptation and transformation where the system adjusts, modifies, or changes its characteristics and creates new systems so that the shock no longer has an impact.
Imagine the fate of a swimmer who only focuses on the choppiness of the waves but fails to see the shark from afar closing in. At the heart of it, a company is resilient if it can withstand stresses and still have the long-term ability to spot things on the horizon and handle further unprecedented stresses.
It must therefore be responsive to its environment with its people, structures, and systems adapting and transforming. Alternative approaches underpinned by new mindsets are needed to reduce the impact of the environment on operations. The supply chain challenges today are reflective of geopolitics, protectionist trade policy, and failed investment in technological and port capacity.
In response, some companies have adapted their supply chain by:
Reshoring – Removing production sites from overseas and returning them to domestic locations that are closer to demand centres to reduce the impact of geopolitical risks.
Nearshoring -Removing production sites from overseas and relocating them closer to trading partners or closer geographic territories.
Redundancy – Pooling of supplier capacity and development of multiple supply sources in multiple locations to create buffers in the supply chain.
Visibility – Leveraging data analytics to conduct real-time monitoring of material risks in the supply chain.
Technology – Alleviating inventory pressures through the usage of artificial intelligence, robotics, and semi-autonomous factories to reconfigure production systems.
There is a lot that can be learned from companies that have adapted their supply chain management in response to the pandemic and its associated chaos.
Within these stories are some recommendations you can follow for your business:
Assess the risk and not just the hazard. Fully understand the drivers behind your risk position by knowing your vulnerability(propensity to be affected), quality of existing controls, and levels of exposure (impact to environment, economic, social, cultural assets).(Photo Credit-LA Times)
Have a shared view of the risk landscape your organization faces. This will be driven by your risk culture and how you collectively perceive risk-taking.
Understand how the risk landscape affects the key components of your systems. Which components are resilient, which are not, and why?
Observe power dynamics. Understanding how market players use or misuse power can signal where you should deploy capital, how you should secure assets or acquire assets to cope with shocks.
Apply systems thinking. Take the time to appreciate the complexity and interlinkages of different risks example how disasters trigger economic and labour shocks, and how political conflicts can leave stakeholders more exposed to disaster.
Move beyond what you think you know. Explore long-term trends or likely stressors (climate change) and assess whether your physical assets, people, systems, and governance structures are ready for it. Face forward. Horizon scan and use predictive data. The past is not likely to predict your future.
Deploy effective metrics to measure exposures in their journey to resilience. Use modeling and forecasting to assess your performance.
Leverage Technology to increase supply chain insights into sustainability, ethical sourcing of materials & labour, and value leakages.
Resilience requires an eclectic approach and thoughtful analysis. In this era of perpetual market disturbances, consider it your best chance for the master stroke!
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