Supply Chain Resilience

As someone in the business of risk management, looking back at articles in January 2020 forecasting key trends for supply chain management in the coming year is an interesting exercise. Many articles reference multiple factors which were then forecast to add complexity to supply chain managers work this year—geopolitical tensions, economic uncertainty, trade agreement changes, consumers’ shifting expectations and consumption patterns, and changing costs.

Mark Hermans, a managing director at PriceWaterhouseCoopers, said in order to survive in this environment, supply chains need to be agile, smarter and faster—more than ever before.

The fact is, we all know that the greatest disruption to supply chains in living memory—COVID-19—was just around the corner when these predictions were made. Whatever complexity was forecast then is nothing compared to what businesses would ultimately face—showing the need to think broadly when undertaking risk planning exercises.

In the case of supply chain resilience, many businesses are being forced to assess their resilience and do an even deeper dive into their supply chains. The difference this time is that there are even more factors to weigh.

What was already clear prior to COVID-19 was that a lean supply chain could heighten risks when there was a bottleneck. While globalization of business and expansion of supply chains overseas has reduced costs, made firms more competitive, increased consumer choice and convenience and supported business and economic growth, on average, companies worldwide experience supply chain disruptions that last a month or longer every 3.7 years, even prior to COVID-19.

With many traditional suppliers disrupted during lockdown, there’s renewed conversation on the need for diversification—beyond one country to multiple countries or regions. At the same time, trends such as protectionism and consumer demand for ethical and sustainable products are also set to play a key role in our supply chains in coming years.

Research shows that 91% of consumers want brands to use sustainable ingredients or materials, and 92% believe sustainable business practices should be standard. More than half of people think it's important that products are fully made from recycled materials, according to Monash Business School’s Australian Consumer and Retail Studies unit (ACRS). 

Supply chain professionals looking to future-proof supply lines must now juggle this laundry list of short- and longer-term factors. By doing so can they not only ensure that immediate disruption is minimized but that any solutions stand up to scrutiny long term.

With so many factors to consider as they reshape the supply chain to navigate disruption and meet evolving customer and stakeholder expectations in 2020 and beyond, it's never been more important to take a data-driven approach to strengthening supply chains. Only in this way can supply chain professionals take the holistic view of potential risks and opportunities, while lightening the load when it comes to making more informed decisions about a complex array of factors.

Doing so is critical if businesses are to avoid further costly disruptions as they look to recover from the pandemic. New McKinsey data shows that a single prolonged production-only shock would wipe out between 30 and 50% of one year’s earnings before interest, taxes, depreciation, and amortization (EBITDA) for companies in most industries. If that event disrupts distribution channels the losses could be even higher.

Fortunately, new technologies are making it possible to gain more visibility by mapping the extended supply chain, without serious loss to efficiency. In addition, data-driven tools such as FM Global's Resilience Index are helping businesses identify countries that provide the best opportunities to reap the cost, materials and innovation benefits of an extended supply chain.

By ranking 130 countries on 12 economic, risk quality and supply chain-related measures it allows businesses to understand the impact of domestic and international factors on a country's resilience to disruption. It allows businesses to take a two- to- five-year view of exposure to risks into consideration when planning supply chains, taking natural disaster risk and other relevant measures such as visibility and standard of corporate governance in their intended supply chain hub. 

Facing increasing uncertainty with potentially profound impacts on their businesses, senior executives can use the Resilience Index to compare the countries their current and prospective suppliers are located in quickly and easily, examine five-year trends and export data into reports and presentations. This is invaluable support when making decisions about where to locate supply chains, or to operate or expand facilities.

When complexity increased in 2020 beyond what most people could have imagined even as recently as last January, one of the most strategic decisions any supply chain professional can make is what tools they will use to support their next move. With the right insights and support, businesses can proactively integrate the latest trends into their planning and become more agile in the face of disruption.

Related content:

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