Supply chain risks can have disastrous consequences for manufacturers. Common risks include health and safety hazards, data breaches, criminal activity, changing regulations and unexpected events - like a global pandemic.
Covid-19 has been a wake-up call for many manufacturers, as they struggle with extended lead times and component shortages. Many are realising that they need to get a better grip on supply chain risk management.
So what measures can manufacturers take to help navigate supply chain risk in the wake of a crisis?
Lessons from the past
When Japan was hit with a 9.0 earthquake and 45-foot wall of water in 2011, as well as the existential loss of life, it caused massive supply chain disruptions for companies across the globe.
But it was the companies with flexible supply chain capabilities that were able to recover quicker than their competitors. According to an article in Industry Week, one leading printer manufacturer managed to restore production to pre-disaster levels in less than four months. How did they do it? By diversifying parts production to mainland China and various areas throughout Japan.
Working closely with suppliers was another key to fast recovery, made possible by the deep relationships and trust built up between manufacturers and suppliers. Meanwhile, other companies managed to bounce back fast because they were ready and prepared, having already developed business continuity and risk management plans.
The Japan tsunami highlighted the importance of flexible supply chain capabilities and working closely with suppliers in times of crisis. It also showed the value of understanding supply chain risk factors and having plans in place to mitigate them.
While events like the Japan tsunami are rare, supply chain disruptions take place all the time and manufacturers need to plan for them.
When Covid-19 hit, the companies that have been able to bounce back faster are those who were able to respond quickly. Some of the measures manufacturers took to help navigate risk included:
- Creating contingency plans - Developing plans based on different scenarios, both optimistic and ‘worst case’
- Boosting supplier flexibility - Working with existing suppliers to create a continuity plan and identifying alternative suppliers to diversify and protect against shortages
- Managing demand volatility - Creating inventory reserves and prioritising high-value products
But those that were able to respond quickly were those who had already embraced risk management planning and had full visibility of their whole supply chain network.
Understanding supply chain risks allows manufacturers to plan ahead and improve resilience. One such risk management strategy is supply chain mapping. It can be both time and labour intensive, but the value is far greater than the cost and time involved in developing it.
The best approach when creating a supply chain map is to use the bill of materials (BOM) and concentrate on the key components. Start with the top five products by revenue and follow the supply chain to component suppliers, their suppliers, and all the way down to raw materials suppliers. The map should include information about the activities each site performs, alternative sites that could perform the same activity, and how long it would take the supplier to begin shipping from the alternative site.
Establishing a dedicated supply chain intelligence platform could also help manufacturers to scenario plan effectively. By leveraging data from internal and external sources, such a platform would allow manufacturers to foresee potential issues. In turn, this would enable them to prepare ahead of time and put them in a better position when disruption hits. The platform could also be used to drive greater visibility and collaboration across a manufacturer’s entire ecosystem of suppliers.
Even when evaluating suppliers, manufacturers should be thinking about disruption-related metrics. It’s a good idea to spend some time talking to them about their own contingency plans and emergency procedures, to make sure these are up to standard. The same applies to your existing suppliers. It’s not too late to have these conversations, and it could prevent a lot of stress and panic should disruption occur.
Covid-19 served as a powerful reminder that we never know what’s around the corner. The question is, will it be the black swan event that finally forces manufacturers to enhance supply chain risk management? Perhaps we can expect to see companies fall into two camps. There will be those who do nothing, in the hope that such disruption will never happen again. Then there will be those who make investments in understanding risks and gaining visibility of the whole supply chain, so they can react fast when disruptions do occur. And these are the companies that are likely to succeed.