From daily fire-fighting to building Supply Chain Resilience
Freight capacity collapse, border closures, restrictions on movement, supplier inability to deliver components – how do you pivot from daily fire-fighting to building supply chain resilience?
Over the last number of weeks, Trade Link like have published customer advisory updates on the status of our operations and market developments as the Covid-19 pandemic continues its assault on global supply chains.
Working collaboratively with market leading clients that have very complex global supply chains, we have observed some common themes that our clients are talking to us about – from supplier stock-outs and freight capacity planning to increasing safety-stock levels and alternative sourcing strategies. Equally we observe the key strategies being used by clients to contain supply chain risk and navigate through the recovery process.
We hope that that in sharing these client insights we can help you understand your exposures to Covid-19 supply chain risk, and more importantly, to build supply chain resilience and inoculate your business against future disruptive events.
Supply Chain Impacts
As we have reported in recent weeks, global routes of all forms of transportation are disrupted and the movement of goods remains challenging and dynamic. Virtually every business is feeling the effects of the Covid-19 pandemic and many companies and whole industries have been caught off guard by the ripple effects tearing through their supply chains.
A market-leading car manufacturer for example needed to shut down seven of its factories in Korea due to qualified vendors’ inability to deliver components to produce wire harnesses for their vehicles. The immediate impact of this issue has affected 40 percent of this global car manufacturers total network output, dictating the pause of a new model launch (source: New York Times).
Meanwhile, countries are trying to keep borders open to the flow of goods against a backdrop of decimated transportation capacity and restrictions, resulting from labour shortages and country lockdowns. The airline industry has taken one of the heavier blows during this crisis. International seat capacity has dropped by almost 80% from a year ago and half the world’s airplanes are in storage, suggesting the aviation industry may take years to recover from the Covid-19 pandemic (source: IATA).
Often referred to as the worlds workshop, China plays a central role in global supply chains. As China and East Asia attempt to restart economic activity, supply chains remain impaired. The supply of critical components from tier suppliers continues to be problematic, with many smaller suppliers facing bankruptcy.
Building a resilient Supply Chain
Trade Link is working with leading manufacturers throughout this immediate crisis on issues that range from supply of face masks – to keep suppliers up and running – to alternative sourcing strategies, in a bid to mitigate supply chain risk. Based on contingency actions being adopted, coupled with our learnings from past disruptive instances, we set out three key strategies to help companies build a resilient supply chain:
- Proactive Strategic Planning
More and more we observe mid-size and large clients establishing cross-functional supply chain risk management teams with processes that extend outside the company walls to suppliers, logistics partners and carriers. With the right planning, processes and partners in place, our clients can increase their chances of preparing for changes and minimizing disruptions. Advance planning activities include:
- Analysing supplier risk/concentration and considering alternative sources as a back-up.
- Assessing product components for criticality and risk, essentially blowing back the product into its component and supplier parts.
- Procurement teams working closely with sales to review demand and promotion strategies.
- Proper supplier due diligence and capacity risk reviews to allow for changes in volume and end-customer lead-time.
- Supplier contract planning for insurance, indemnification and limitations of liability.
- Logistics and multi-modal route planning in each region to cover critical, exception and standard shipments to identify and plan for premium or high capacity transit routes.
- Review of inventory strategy to optimise service levels by increasing safety-stock levels for critical parts closer to the end-customer.
- Establishing CKD operations in countries with high import taxes on finished products.
- Preparing for customs and administration requirements within scenario route plans.
- Continuously Monitor risk
Customers that are proactive in risk management continuously monitor trends and events that might cause disruption in the global supply chain. On an ongoing basis together with our customers we monitor the most relevant supply chain risks using internal and external software, data and social media channel sources to identify:
- Demand risk using customer analytics to predict changes in demand.
- Supply risks of raw materials that may impact manufacture of finished goods.
- Supplier and partner financial stability to identify risk exposure.
- If stockpiling, the cash flow impact and the likelihood of any customer disruption.
- Industry risk in key areas of finance, technology and innovation
- Environmental risks including socio-economic, political, governmental, or environmental disasters.
- Regulatory risks & tariff changes.
- Contingency risk plans to ensure they are relevant, robust with up to date information, contacts, procedures etc.
- Communication and Digitization
Communication & digitization across the supply chain – between customers, supplier, partners and carriers is creating new opportunities for customer and partner interaction and facilitating proactive planning for disruption events. It is essential to create robust communication processes and systems were information can be captured and shared in real-time. Effective digitization planning involves:
- Engaging with suppliers to understand their systems, processes and contingency plans.
- Having a clear communication strategy that facilitates multi-directional communication flow across markets and establishes a clear chain of demand for decision making.
- Digitization and information management tools that cater for disparate communication systems and levels of technology advancement in supply markets. In some markets for example, supplier communication may be reliant on more traditional methods, such as fax and telephone, while other more advanced suppliers and markets may be fully integrated with EDI visibility. It is essential to have information sharing and communication strategies and procedures for all stakeholders and eventualities.
- Embedding supply-chain risk management into regular decision-making and planning processes.
- Leveraging IoT solutions for smart manufacturing operations to mitigate reliance on labour intensive processes.
- Invest in digital procurement technology to automate and streamline manual, routine procurement tasks.
These perhaps simple yet highly effective strategies are the first step towards creating a truly resilient supply chain. Working through each strategy will help your business identify the risks faced, and how to prioritise and address them.
If you would like supply chain risk management advice and support, we can help. Trade Link develops and implements custom supply chain programs for leading automotive, industrial, retail and healthcare customers, looking to improve all facets of their operations and mitigate against disruption. Our experienced global specialists help organizations monitor their supply chain activities, identify weaknesses and make improvements.
Contact our team and discover how we can assist you.