Supply Chain Resilience

by Mark Millar, International Keynote Speaker, Commissioned Author, Trusted Advisor and Supply Chain Thought Leader

Multiple disruptions in recent years have exposed the profound interdependencies and inherent vulnerabilities in today’s complex, global supply chain ecosystems. In our increasingly volatile world, Supply Chain Resilience has moved to the top of the strategic agenda in the majority of corporate boardrooms.

Even in the post-pandemic new normal, global trade flows continue to be disrupted by Black Swan events – incidents that are unexpected, unprecedented and have massive implications.

The ongoing crisis in Ukraine, the armed conflict in the Middle East, the drought affecting the Panama Canal and the Baltimore Port accident, have all caused huge disruption to global supply chains.

All too frequently these incidents have highly visible consequences for product availability, order fulfilment and customer service.

Chief executives are painfully aware of how these risks permeate their business, and how disgruntled consumers – through the power of social media – can damage within seconds, reputations and brands that took years to cultivate.

SUPPLY CHAIN DISRUPTIONS

Supply chains that were once local or regional are now truly global. They have become inter-connected ecosystems that embrace numerous stakeholders and involve profound interdependencies, rendering them vulnerable in a volatile world.

Furthermore, supply chains are not only exposed to disruptions whilst physical goods are being produced, stored or transported. They also depend on numerous third-party service providers for information technology, finance, energy, telecommunications and logistics services, any of which could fail, causing severe knock-on effects throughout the ecosystem.

With most of today’s supply chains adopting ‘lean’ principles, any sort of interruption can have far-reaching affects which negatively impact sourcing and production activities, with ramifications for customer service levels.

SUPPLY CHAIN RISKS

The better we understand the different types of risk, their likelihood and potential damage, the more effectively we can identify which strategies could and should be implemented in order to build supply chain resilience and help protect the business.

How can we identify supply chain risk?

The dictionary definition of Risk is “a factor, thing, element, or course involving uncertain danger; a hazard”.

The Supply Chain Risk Leadership Council describes risk as “any factor or event that can materially disrupt a supply chain—whether within a single company or spread across multiple companies”.

Personally, I prefer the succinct definition from the Sourcing Innovation Blog: “If you’re counting on it, it’s a risk”!

Over three decades of globalisation, out-sourcing initiatives and off-shoring strategies have resulted in many of the risks that were previously contained within the organisation, becoming re-positioned throughout the extensive international network of supply chain participants.

Many internal risks have become external risks, substantially increasing business exposure. Bearing this in mind, we can see how risks are common and widespread—not just within our own organisations but within all the other participants throughout the supply chain ecosystem.

Positional Perspective

It is also important to note, that one’s perspective on risk depends largely on where one sits within the supply chain ecosystem, and also within which function in the supply chain one is operating.

For example, the finance manager may well have a different perspective on supply chain risk to the logistics manager or the procurement manager.

Also, the component supplier may well have a different perspective on supply chain risk to the high street retailer.

Nevertheless, they are all participants and stakeholders in a single supply chain ecosystem, within which risks are inherently prevalent, with the potential to impact multiple stakeholders. Some risks are easy to identify, others far less so – and there are some that are completely unpredictable.

Categories of Supply Chain Risk. Broadly speaking, there are two main categories of supply chain risk:

i. Catastrophic Risks.

These are the ‘Known Unknowns’ – events that unfortunately do occur. Incidents that are almost certain to happen at some stage – except that the actual what, where and when remains very much elusive, posing indiscriminate risks to the supply chain that are extremely difficult to predict. There are three types of catastrophic risk:

Natural Disasters – such as floods, typhoons, earthquakes, pandemics;
Sabotage – including war, terrorism, cyber-attacks, political or social conflicts;
Accidents – including traffic accidents, airplane crashes, ship collisions.

Regrettably these events often involve tragic loss of life. However, concentrating on the supply chain perspective, these incidents inevitably result in massive and immediate disruption to the supply chain!

Examples in recent years include the Covid-19 pandemic, armed conflicts in Ukraine and Israel, floods, earthquakes, volcanic eruptions, terrorist attacks, ship hijackings, aeroplane crashes, factory fires, building collapses, explosions and cyber-attacks. Unfortunately, such catastrophic events will continue to disrupt global supply chains – somehow, at some time, in some place.

ii. Business Risks.

There are a multitude of business risks that could impede the supply chain. Examples include component shortages, product failure, supplier bankruptcy, quality defects, transportation breakdowns, labour disputes, systems malfunction, commodity price fluctuations, operational breakdowns, fraud, cyber security breaches and cross-border clearance delays, which usually arise due to waiting for information or funds.

Any of these business risks could materialise across the extended ecosystem, with upstream and downstream consequences for the supply chain, thereby affecting business performance and financial results.

Whilst the catastrophic risks capture global headlines, the smaller, routine business risks that may be more predictable and easier to identify, can in reality be just as damaging for the business.

In today’s complex, connected and volatile world, it is essential for companies to build Supply Chain Resilience, where Resilience is the capacity to withstand, or to recover quickly from difficulties.

A critical element of building supply chain resilience is being ‘prepared’.

Being prepared involves becoming better equipped to sense and respond to the various risks inherent across the ecosystem – and to rapidly recover from whatever risks may materialise.

With the difficulty of predicting which risks may occur – and the when and where of any potential occurrence – then preparedness becomes equally, if not more important than the ability to predict.

In practise, how many risks can we realistically predict? Whereas, companies can develop a portfolio of contingency plans that make them better prepared to respond to a whole range of eventualities.

Every business will have – or should have – its own unique risk strategy to monitor, evaluate and counter potential weaknesses in their individual supply chain structures and networks.

In practice, developing Supply Chain Resilience will typically feature a soundly based risk mitigation framework structured around four key pillars: Visibility, Collaboration, Flexibility and Speed.

These four elements are the essential dimensions of supply chain resilience, which subsequently becomes a source of competitive advantage.

Visibility. In order to sense a problem, it must be visible. Developing Visibility is a process combining technology and partnership. Technology is at such an advanced stage that we can see and measure virtually every aspect of the supply chain. However, to be used effectively, the available technology needs to be shared with openness and trust amongst partners up and down the supply chain. Deploying appropriate technology to provide visibility enables companies to have an early warning system that alerts relevant participants when events are deviating from the plan.
Collaboration. As supply chain ecosystems have become increasingly complex, collaboration becomes vitally important. Collaboration involves the open and cooperative sharing of information on a need-to-know basis with constituent partners throughout the supply chain ecosystem – to drive the overall efficiency and optimal performance of the supply chain, without compromising proprietary data.
Flexibility. Flexibility is another critical component of building supply chain resilience. Being flexible means being responsive to change, being adaptable – for example having alternative sources of supply ready to bring on stream at short notice.
Speed. Coupled with flexibility is the ‘need-for-speed’ in order to enable rapid-response mechanisms. Trade and commerce now move at digital speed and therefore a key component of the supply chain resilience framework is to be able to act with speed – both in decision making and also in taking action. Just as Visibility enables problems to be sensed, it is then essential to act with Speed in assessing, deciding and implementing corrective actions. One approach to support speed in both decision and action is to match responsibility, authority and accountability at the same level within the organisation.

Developing these four key capabilities will empower an organisation with timely information feeds into the all-important sense and response mechanisms that underpin the company’s preparedness – harnessing its readiness, intelligence and resources to manage supply chain risk.

As the external environment becomes more volatile and our supply chain ecosystems become more vulnerable, risks become more widespread. Adopting this four-pillar framework incorporating visibility, collaboration, flexibility and speed will help organisations build supply chain resilience, which in turn will drive competitive advantage.

CONCLUSION

Enhancing supply chain resilience is a strategic imperative that every business must undertake.

Each supply chain is only as strong as its weakest link. The reality is that things will almost certainly go wrong at some stage – somehow, sometime and somewhere. We just don’t know what, where, or when our turn will come!

Risk is a certainty. If you’re counting on it, it’s a risk. What matters as much as the risk itself, is how well prepared your organisation is – to sense and respond; to identify, react and counter whatever mishaps may occur.

The biggest risk is the unknown. Expect the unexpected – and be prepared!

About the Author

Mark Millar
International Keynote Speaker, Commissioned Author, Trusted Advisor and Supply Chain Thought Leader

Mark Millar is an internationally renowned keynote speaker; a respected authority on supply chain and logistics; and author of the widely-acclaimed book Global Supply Chain Ecosystems. A LogiSYM Thought leadership Champion, Mark leverages 30+ years’ global business experience to provide knowledgeable and independent perspectives that empower executives to make better-informed decisions. A Visiting Lecturer at Hong Kong Polytechnic University, Mark advises companies large and small – helping clients with their strategic growth objectives and supply chain strategies. He serves on Advisory Boards at the Logistics and Supply Chain Management Society and the Foundation for Future Supply Chain.