Were you prepared for the supply chain disruptions that impacted your business in 2020? Most likely, no. Was your procurement organization at least able to respond swiftly?
The disruption that supply chains have experienced in the last 12 months was massive, global and end-to-end in scope. While we can never fully prepare for this type of unforeseen event, there is much we can learn by reflecting on the past year. We can take these learned insights and implement the following best practices within our organizations in preparation for future disruptions.
Disruptions can show up as a myriad of things -- product quality issues; localized natural disasters such as flooding or fire; labor issues that disrupt the flow or delivery of goods and raw materials; financial issues or bankruptcy at a key supplier or service provider; or changes in trade policy and other geopolitical shifts. The risk for disruption is always at play, but having strategic best practices in place helps a company respond quickly to minimize the impact when it happens.
Visibility to the critical path
Supply chains come in a variety of sizes, scales and complexities. One thing they all have in common is a critical path. Every team, department and function play important roles during normal operations, but not all are part of the critical path. Mapping the entire end-to-end supply chain can be a time- and resource-intensive exercise that many supply chain leaders have on their list of to-dos, but struggle to fit into annual budgets. Instead, prioritizing the mapping of the critical path is less time-consuming and is well worth the limited resources involved.
Take the time now to reflect on the past 12 months. The global pandemic has exposed those functions, activities, materials and partners that make up the critical path. Document what you have learned by mapping the critical path and making it visible within your organization and across your network. The next time a disruption occurs, you will be empowered to respond quickly because your teams will know where to focus time and resources. Rather than losing days, weeks and even months trying to gather information and asking questions, your organization will be able to drill into the must-do tasks and begin taking action to lessen the impact.
Diversification and proactive planning
Now that you have identified your critical path, you’ll be prepared to react quickly the next time disruption occurs. You can also start putting things into motion before disruption strikes. Your critical path mapping can unlock proactive strategies to mitigate and even avoid the risk of future disruption. The next step toward proactive planning is to evaluate the strengths, weaknesses, opportunities and threats, often referred to as a SWOT analysis, for your supply chain, focusing on the critical path you identified. Pay careful attention to the weaknesses and strengths highlighted specifically by the pandemic.
As you perform a SWOT analysis, look for areas where there is a lack of diversification or alternative options. Best-in-class supply chains can proactively plan and prevent disruption by implementing strategies that strive, whenever possible, to diversify critical path components of the supply chain. Being reliant on a single person in your organization to maintain a critical inventory allocation program can be just as risky as procuring all critical products from a single manufacturing plant. Diversification will look different for each organization, but the key to proactive planning is having alternate options in place and knowing ahead of time what actions you will take if a disruption occurs.
When your supply chain is disrupted, suppliers upstream and customers downstream also feel the effects. When each party reacts and responds independently to the disruption, impacts are often amplified, which can further complicate your best-laid plans. Disruptions also force trade-off decisions. Negotiating a low price with a supplier may look good on the balance sheet, but when that supplier needs to make trade-off decisions due to a disruption on their end, you may find your product is the lowest priority to get made and shipped. All this can be avoided by building partnerships across the supply chain.
Partnerships create deeper, richer connections between businesses. These relationships focus on shared profitability and growth, which helps align strategic goals and objectives. This alignment creates a shared objective and builds the necessary trust for collaboration. Collaboration moves you away from localized decision making and allows you to work with supply chain partners to develop a shared view of the critical path, synchronized reactive and proactive plans and dynamic solutions to diversification within the supply chain.
In summary, disruption-prepared organizations have a thorough understanding of the critical elements of their supply chain. They are prepared to react swiftly and decisively when disruptions occur. They are proactive in planning for and mitigating potential disruptions. They leverage partnerships to synchronize their supply chain, which strengthens their response when disruption does occur. They embed these best practices in their annual business planning cycle, ensuring that they continue to evaluate disruption response capabilities as the business evolves. Following each of these best practices will guarantee that even in the most unprecedented of scenarios, you will have developed a resilient supply chain ready to respond.