As 2020 ab(normal) year is ending, we learned many lessons about supply chain disruptions across the globe.
When China, the world’s factory, was impacted, our supply chains were impacted.
Cost optimization supply chain models did not help to absorb the disturbance in supply chain due to the lean concepts, like Just in Time (JIT) Inventory as there is no extra capacity to overcome the delay in the supply chain. another cost optimization principle is overseas sourcing for cheap raw material and component disrupted the supply chain, as most of the offshoring sourcing is done in china. we learned in 2020 that sole sourcing is an extremely high risk to be considered while designing our supply chain.
We had similar experience in 2011 when the tsunami and an earthquake hit Japan and how global supply chains were impacted deeply due to the shortage in the product with high uncertainties of bouncing back to normal production.
Supply chains are fragile due to their design do not consider resilience as an objective like cost optimization and customer service level.
Supply chain re-engineering will be an exercise in the upcoming years to consider supply chain resilience as an objective. it is not only about managing supply chain risk or integrating supply chain in enterprise risk management and business continuity, but it is about the big picture of supply chain as the risk related to supply chain mostly is an external risk in the perspective of the enterprise, but it is a supply chain risk impacting many firms across the flows of the supply chain, so it is an internal risk from supply chain perspective. So, re-engineering of supply chain to collaborate with tier 1 suppliers and customers as well as higher tiers to identify risks impacting the supply chain.
Here we will discuss 10 points to be considered while re-designing the supply chain
1. Reconsider sources of risk in your supply chain: there are three categories to be considered as following:
a. Internal to the firm: Process, control
b. External to the firm but internal to the supply chain network: Supply, Demand
c. External to the network: Environment
The black swans are risks with low probabilities and high severities, like the pandemic we face in 2020.
2. Consider sharing information across supply chain considering the cybersecurity and data leakage across the supply chain. Instead of having an isolated forecast within the firm which adding a complexity to supply chain like bullwhip effect your forecast is generating.
3. Resilience should be designed in high level of collaboration across firms to identify and manage risks. Resilience in supply chain implies agility, this will be enhanced by imposing risk management culture across supply chain not only within your organization. Resilience should be considered as an object function as well as cost saving and customer service level.
4. Elaborate critical paths in your supply chain where there is a long lead time, single source of supply with no alternative short-lead time, poor visibility, so no shared information between nodes, and high level of identifiable risks.
5. Choose supply chain strategies that keep several options open, Re-examine the ‘efficiency vs. redundancy’ trade off. If you consider redundant inventory, or extra capacity to face disruption like firefighting system in a building. It works only in case of fire. We must differentiate between safety stock used to cover variability in the operational demand and stock needed during disruption.
6. In the era of the digital transformation, it is easy to share information across many firms using collaboration software for collaborative planning, forecasting and replenishment (CPFR). The CPFR should be rooted in supply chain strategy and not an add-in.
7. Find agile partners in the upstream and downstream of the supply chain, who can respond quickly to variability in supply and demand.
8. Enhance supply chain visibility through shared information and work to reduce the distortion generated by pull whip effect. Demand driven Material Requirement Planning (DDMRP) concept can balance between the pull and push supply chain with better visibility. Another factor distorting the visibility of supply chain is the functional silos within an organization. The presence of ‘functional silos’ inhibits the free flow of information leading to ‘second guessing’ and a general lack of communication.
9. Accelerate the supply chain by enhancing supply chain velocity, there are three factors to be considered:
a. streamlined processes
b. reduced in-bound lead-times
c. non-value -time reduction.
Streamlining a process does not mean thinking linearly in cost saving methodology but introducing flexibility in the process like interchangeability and postponement. Those tools should help you to overcome the challenges in the demand within available resources in your supply chain.
10.be ready to re design once you bounce back and recover from the disruption. The resilience is an iterative task and needs continuous monitoring and development.
The above points be considered as a checklist while you are reviewing your supply chain at the end of the year. you should assess your supply chain by a stress test and find out hidden vulnerabilities you are not aware about them and register them in the supply chain risk register. Don’t forget to use redundancy and flexibility tools while redesigning the supply chain and make it resilient.
1- BUILDING THE RESILIENT SUPPLY CHAIN: International Journal of Logistics Management, Vol. 15, №2, pp1–13, 2004
2- A Supply Chain View of the Resilient Enterprise