If resilience is the panacea to today’s supply chain challenges, it seems that everyone has a different prescription. Every industry article, news segment, analyst research paper, and boardroom conversation offers varying perspectives on the real issues impacting supply chain performance and the best way to fix them.
Feeling overwhelmed? You’re not alone. Since 2019, nearly 70% of supply chain leaders have been constantly responding to disruption. And they’ve had little to no time to recover from raw material and labor shortages, supplier and factory failures, transportation delays, and rising costs while encountering unpredictable demand.
But considering how supply chains have responded and overcome high-impact global and regional events over the past couple of years, Mark Balte, Logility’s executive vice president of supply chain innovation, believes that resilience ultimately comes down to planning.
“Supply chains must be designed to avoid or absorb the impact of these disruptions and continuously maintain corporate financial objectives and service level goals,” Balte advises. “And that resilience must encompass all planning horizons from a strategic and operational perspective.”
Driving a Much-Needed Supply Chain Reorganization
According to Gartner1, 25% of organizations will gain a critical competitive advantage in their supply chains by 2025. How? By increasing visibility across multiple tiers of their supplier network to proactively manage supplier risk.
Considering 67% of disruptions are unforeseen, such transparency across all tiers can yield tremendous resilience, no matter how your business defines it. With access to digital data across your enterprise ecosystem and your multi-enterprise partners’ system, you can measure variability in demand, lead time, production capacity, throughput performance, resource availability, and transportation schedules with planning algorithms.
“This approach to supply chain planning may be a significant paradigm shift. But it moves business decision-making toward a more probabilistic mindset,” shares Matt Gorman, senior business consultant at Logility. “A supply chain design that applies realistic parameters to establish buffers across the nodes in the supply chain can demonstrate a competitive level of resilience.”
Many disruptions facing supply chain organizations today are best handled through probabilistic planning. Companies can better gauge emerging risks and opportunities to corporate financial and service level goals when shifting from a least-cost supply chain design to a resilient supply chain design. And for that reason, they can absorb and avoid disruption, measure variability proactively, and establish the right strategies and inventory buffers to address it across the supply network and short- and long-term planning horizons.
Developing Diverse, Resilient Sourcing Strategies
Vetting all the tiers of the supply network has never been more important, especially when addressing growing expectations for social accountability, environmental responsibility, and financial reliability to establish a responsible sourcing network.
“Once a responsible sourcing network is established, you can then include product and supply chain strategies to design the supply chain network,” suggests Balte. “Resilient sourcing strategies may include dual sourcing around key raw materials, product raw materials, pricing, sustainability suppliers, diverse suppliers such as minority or female-owned businesses, component inventory buffers, production buffers, etc.
“Companies need to model beyond their tier-one supplier network,” Balte continues. “And the technology exists to make that happen, allowing companies to proactively manage supplier risk and increase organizations’ resilience while understanding changes in customer demand and responding effectively.”
Over 40% of supply disruptions occur at and beyond the second tier, making end-to-end collaboration and transparency highly sought-after capabilities when choosing supply chain technology to support this. Using a digital supply chain platform, supply chain organizations can identify where risk may be within the supply network’s structure. They can remove much of the unknown risks, along with those already known, in real time with continuous planning.
“There’s a lot of power in knowing what’s occurring in real time, instead of waiting weeks or months before finding out about an event, small or large, that already happened somewhere in the supply network,” Gorman acknowledges. “Organizations have the time to recover and do it more quickly. Otherwise, without a resilient design, they end up building large amounts of stock to get through a potential disruption, which only eats into their margins and profits.”
Turning a Multi-Tier Supplier Network into a Competitive Edge
Historically, businesses were able to model good forecasts and promise order delivery based on them. But that only works well when material availability, manufacturing and logistics capacity, lead time constraints, and customer demand were predictable.
“Nowadays, a promise of, say, 20 days to deliver an order is most likely no longer viable, it’s variable,” Balte says. “Companies using a spreadsheet to do this kind of order promise analysis and planning determination will fall short. And as a result, they are more likely to deliver customer orders two or three days late ‒ and no one can afford to do that.”
A resilient supply chain requires organizations to understand risk and respond to it well throughout internal operations as well as the extended supplier network and customer base. With greater visibility into the supply side of the business, companies can react faster, track emerging and potential events with greater precision, and determine next steps more strategically. Meanwhile, they can better understand how their actions and best practices impact environmental and social responsibilities and customer satisfaction.
“The supply chain function is not just about accepting orders upfront and fulfilling them. It’s the last leg of an order experience that dictates whether the customer is a one-time visitor or a repeat buyer,” states Gorman. “When organizations can assess the multi-tier supply network transparently and collaboratively, they can entertain different scenarios of alternative vendors and delivery times to pinpoint a realistic delivery promise and tell customers immediately what they can expect.”
For more insights on creating resilient sourcing strategies from Mark Balte and Matt Gorman, watch our on-demand webcast, “Create Resilient Sourcing Structures in the Face of Disruptions, One Brick at a Time.”
1 Manage Supplier Risk by Improving Supplier Visibility With Technology
Published 7 March 2022
By Cian Curtin, William McNeill, Koray Kose