Build resilience into your supply chain

The article was originally authored by Laurence Mets and Rune Asbjørn Antonsen.

The development of COVID-19 and its impact on global business has highlighted the vulnerability of supply chains to rapid disruptions. Many companies are struggling with both changed demand patterns and disrupted supply situations, as the effects of the virus outbreak extend further than anticipated.

We simply don’t know or understand the full impact of COVID-19 on our businesses, and we can’t predict what is in store for the future. But we can reflect and learn from the past. We’ve gathered three actions to ensure resilience in supply chains in the face of a crisis: understanding the demand and supply risk, mapping changes and effect on supply chain nodes, and identifying expecting changes and mitigating risk. Each action point is back up with lessons learnt from previous supply chain disruptions.

1. Understand the demand and supply risk

Map out the supply chain flow, both upstream and downstream, and the drivers of the demand and supply network. Think about what is being pushed to distribution centres and what is being pulled from consumers. Investigate what will be subject to the greatest change and identify the global drivers that will influence upcoming decisions. This information will enable you to ascertain what will change in demand and supply patterns, for example transportation and workforce components, and the timeframe. This in turn allows you to consider the entire supply chain – how it will affect buyers and how you will be affected by suppliers.

Using this data, you can map out key assumptions and the impact of each of these to start up a dialogue with key stakeholders to immediately ensure that everyone is aware of the risks and potential changes.

Build strong supplier relationships from the outset

Although Nokia’s supply chain disruption took place 20 years ago, the actions taken and insights gained from the case remain relevant today. A fire at a microchip plant resulted in a production delay for Nokia. Initially assessed as minor, the delay turned out to constitute a major risk – similar to how many of us thought about the COVID-19 situation. Nokia remained in close contact with the supplier and identified a key driver for decisions: the raw material could impact more than 5% of their annual production.

Nokia was proactive, establishing daily status updates and calls with the plant and placing special parts on a watch list. They also quickly mapped out key assumptions and their impact by investigating alternative component sources, booking capacity at other plants and engaging employees to aid the plant in boosting production. In the end, Nokia coped with the supply chain disruption without impacting customers.

2. Map the changes and effect on supply chain nodes

Getting out in the field, listening to the challenges hindering effective recovery and figuring out what is working and what is not is crucial when responding to a crisis. But it’s important not to think the worst until you’ve seen the worst. Use pre-existing data and information from key players in your network to create a detailed map of changes and their subsequent effect on different nodes in the supply chain.

Consider and prioritise main stakeholders

Have a clear overview of buyers and suppliers amongst your stakeholders and understand who should be prioritised when supply is lacking. Ensure a clear picture of what makes strategic sense for the future – and consider the need for temporary partners or other collaborations to reduce risk – to help you maximise capacity and supply all demand possible.

Prioritise and collaborate in the supply chain

Three years ago, when Hurricane Irma hit the Miami metropolitan area, this was the approach taken by third-party logistics operator Cowan Systems. Despite projections, predictions and contingency plans, there was a lack of vehicles and drivers to meet the increasing demand for bottled water, groceries and building materials. As regional demand patterns changed, Cowan Systems prioritised its stakeholders, adapting the initial delivery plans for bottled water and even hauling products long distance to accommodate needs further down the supply chain. By identifying all members of the network, from dispatchers and brokers to procurement teams and store managers, there was close collaboration to aggregate last-minute loads and maximise capacity to supply the demand.

Define the essential characteristics of the supply chain network

Defining the nature of your network is key to understanding changes and effects in the supply chain. Consider any high-volume or value lanes in the network, critical points and systematic constraints and how to reduce the risk in these areas. Think about any supply or resource shortages, the logistics flow, the location of stock and how this will be affected by the crisis.

Reduce risk in strained areas

Cowan Systems identified their dependence on shipping lanes and trajectories and that their most critical resource was the capacity of trucks and number of available drivers. They chose to reduce risk in these areas by displacing previously targeted deliveries to swap how the existing capacity was used. To ensure optimised truck and driver capacity, lanes and schedules were used to ensure no truck was empty, e.g. empty trucks returning from deliveries would pick up products and be diverted elsewhere.

3. Identify expected changes and mitigate these risks

An overview of the changes we expect to encounter and ways of mitigating the risks associated with these is vital when the supply chain is in crisis. Consider how regional demand patterns can change and how both regional and global supply patterns are in flux. Think about the timeline, how the crisis situation compares to that of other affected areas and how non-affected areas can be used to adapt to the change and reduce risk.

Track changes in demand and supply and react quickly

Cowan Systems knew that long-haul products had a delivery time of +24 hours. So, while the product was on route, they collaborated with the supply chain network to specifically target delivery locations depending on last minute demand. For example, they prioritised the supply of bottled water and altered delivery schedules of other products to accommodate for the change in demand. Essentially, Cowan Systems took the latest information into account to track changes in demand and supply and make the most optimal decisions.

Create a flexible and resilient supply chain

We are surrounded by a lot of uncertainty, but it’s important to remember that it is not the first time we are facing a crisis, nor will it be the last. Instead of focusing on what could be lost during this crisis, we can turn it around and see what we can gain. This is an opportunity to create flexibility and resilience in your supply chain, strengthen the adaptability of your organisation with stronger processes and a collective mindset, and increase collaboration not only within your own organisation, but also with your suppliers and buyers.