Is Your Supply Chain Ready For The Permacrisis?, asks a Forbes news source.
Supply chains were considered a cost center
For decades, supply chains were considered a cost center – and managing them focused on optimizing cost efficiency and maximizing profit.
Then the world changed.
The global pandemic and other recent geo-political events exposed the inherent risks in our supply chains as manufacturing plants were forced to shut down, borders closed, no-fly zones introduced, and ships came to a standstill.
In the past 12 months we have had the war in Ukraine, climate change challenges, political instability and the surge in inflation.
Collins English Dictionary actually coined a word of the year that sums up the calamaity of 2022: “Permacrisis.”
Permacrisis is an extended period of instability and insecurity, especially one resulting from a series of catastrophic events.
Risk Resiliency is a top priority?
When you talk to supply chain executives, the word that is most commonly used to describe what they need is “Resiliency.” In fact, building resilience against unplanned events has become as important as revenue and profitability.
Now more than ever, we “plan in the perfect world, but execute in the real world.” And in the real world, as my American colleagues often say, “s#!t happens.” Things don’t always go according to plan.
Charles Darwin may have been talking about evolution when he said, “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.” Regardless, I think we can learn a lot as supply chain practitioners from this famous statement. To survive and thrive in today’s global supply chain the winners will be the ones most responsive to change.
How can we prepare for the unexpected?
Here are 3 steps that can help identify, prepare for, and respond to risks across your supply chain.
Scenario Planning through simulations and What If analysis
It is important to develop and implement supply chain risk management and business continuity strategies.
Testing out potential scenarios through simulations can help you identify gaps and weaknesses, and improve your risk resiliency to unforeseen events:
- What if boarders closed to China?
- What if a cargo ship blocked the Suez Canal?
- What if a major bridge closure stops traffic over and on the Mississippi?
- What If there is not enough water for Cargo vessels to travel down the Rhine?
Of course, none of these things could happen, could they?
But what if!
Redesign risk out of the supply chain
In an effort to reduce risk, we are seeing companies take several steps to de-risk their global supply chains:
- Alternate Sourcing Strategies to diversify supply chains, from a geographic perspective, to reduce the supply-side risks of a single country or region. Many companies are talking about a China +1 approach for sourcing key materials, components, and products, and are looking for suppliers nearer to the manufacturing facilities and demand.
- Inventory Optimization Strategies can be leveraged to better position inventor of raw materials, intermediates, and finished products across all tiers of the supply chain to buffer against unforeseen events.
- Flexibility to plan and re-plan – In times of fluctuating demand and uncertain supply, having the flexibility to adjust your S&OP planning cycles from say a monthly to a weekly process can help companies to respond to surges and unforeseen events.
- Agile Manufacturing – Having the ability to rapidly respond to changing customer demands and change production schedules to pivot your production can turn your manufacturing plants into a competitive advantage.
Improved visibility and collaboration across the business network
The reality is, that no company can do it alone. We rely on a business network of suppliers, contract manufacturers, logistics service providers and other partners to deliver the products and services that customers are demanding.
And in the era of Permacrisis, we need to be able to treat all these partners as an extension of our organization.
The need for visibility is critical. At all times, and especially in a crisis, you need to see:
- Which materials and goods are at risk?
- What are my alternate sources of supply for key resources?
- Where is my inventory?
- Which shipments are affected?
- What are the knock on effects to production scheduled, customer orders and ongoing campaigns?
As Darwin may have said if he was dealing with a Permacricis: “It is not the strongest of supply chains that survives, nor the most intelligent, but the one most responsive to change.”
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