“On average, companies now will expect to see a disruption to their production lines of one to two months, which is a very long time, every three-and-a-half to four years,” says Susan Lund, partner at the McKinsey Global Institute in Washington, DC.
With so many potential risks to your supply chain, it is important to build a clear picture of the steps you can take to better prepare yourself against a crisis.
Understand potential risks
This isn’t an easy task for retailers. Carrying out risk assessments for your own supply chain will give you an understanding of your own threats and potential disruptions, but what about your suppliers? What are their threats? What are their supply chain protocols in a crisis? Any problems they have, could well become yours in the event of a supply chain crisis.
Import and export tariff changes, raw material price increases, minimum wage raises, closures of borders, extreme weather events or political unrest – any of these can have a long or short term impact on your supply chain at any point.
Carrying out a comprehensive supply chain risk assessment needs to involve looking at your own threats and those of your suppliers too. This requires trust and transparency within the supply chain along with data gathering and investigation.
“Whether it is because of climate change or unexpected political events, we need to be thinking in terms of building resilience into supply chains as standard,” says Richard Wilding OBE, global thought leader and Professor of Supply Chain Strategy at Cranfield University.
Understanding your risks as well as your suppliers’ risks will inform how you adapt your supply chain to withstand turbulence and increase its stability.
Is there another supplier in a different country that you can use should the worst happen? How much extra stock should you order? If your supply chain broke down, what would the potential cost of disruption to your business be? How long would it take to action your crisis plan? To help you with these unknowns, PWC has eight questions you need to ask yourself to carry out a comprehensive risk assessment and to plan for disruptions to your supply chain.
Diversify your supply chain
Reliance on your supply chain can be a double edged sword. Consistency and reliance build great relationships, meaning a smooth supply chain when times are good. But all of your eggs in one basket can have catastrophic effects to your business when times are tough unless your supplier has many sources to pull from.
If your risk assessment shows that your major suppliers are in a high risk area for potential disruption (political climates, extreme weather events, track record of regular disruption) then researching and developing relationships with alternative suppliers is in your best interests, if only for part of your business.
“We have spent 25 years creating these incredibly complicated, complex global supply chains. And they were designed for cost and efficiency, but without really a thought to what could go wrong along the way,” says Susan Lund.
Of course, traditionally a lean supply chain has been the marker of a successful business. Maximising profit and reducing costs. But in 2021, the true success of your supply chain should be measured by its resilience.
It is a lesson that many retailers have learned the hard way, but that we could all benefit from.
For instance, following on from the Fukushima disaster in 2011, Toyota relocated production of key car parts across the world, rather than solely in Japan, to mitigate the risk of a single event in one part of the world affecting production significantly.
How much extra stock?
A good supply chain mitigation strategy will incorporate an element of stockpiling, a relatively easy way to alleviate temporary problems with your supply chain.
But it is a delicate balance. Too much stockpiling can create boom and bust cycles that play havoc with supply chain stability, inadvertently causing what you are trying to avoid.
“Typically, a demand increase of 12.5% will be passed to a supplier as an increase of 26%, resulting in that supplier placing an increased order for their own supplier of 55% - meaning big oscillations in inventories and supplies that can occur for many years into the future,” points out Professor Richard Wilding OBE.
This is where digitalisation comes into its own. During the pandemic in 2020, Nike was able to see where its stock was in the supply chain, thanks to its digital platform that is linked to its contract manufacturers. When stores shut down and supply chains began to be impacted, it was able to see what products it had and reroute them to e-commerce fulfilment centres instead of its stores.
Instead of panic ordering more stock, they simply took what they had and re-marketed it to their customers. Their sales declined less in the first quarter, compared to other competitors, and they avoided placing unnecessary pressure on the supply chain by stockpiling.
Creating a supply chain that is fit for the future needs to focus on crisis mitigation and resilience. By starting the ground work now, you will be better placed to navigate change and disruption when it appears.
David Mines, Business Development Director at Worldpack, adds: “Worldpack has a broad assured and accredited supply chain, managed by experienced category managers who can influence lead-times. Plus, we have professional inventory managers on hand, whose responsibility is to control stock levels so they are available when needed. We try our very best as part of our Service with Guts mission to minimise any impact a customer has if there is any disruption in the supply chain. Communication is paramount and it is two-way. We are always here to help.”
If you have concerns or questions about the supply chain, or just want to see what it would be like to work with a proactive trusted partner, get in contact by email at email@example.com or ring us on +31(0) 88 494 20 80.