Updated: Sep 24, 2022
Faster and more efficient was the name of the game for supply chain management efforts in the past. The pandemic and the increased occurrence of climate-related events have exposed supply chain vulnerabilities. For example, the flood in BC in late 2021 resulted in the blockage of major highways, railways, and pipelines connecting to the rest of Canada. MBAs love to throw around the term market disruption to sell their projects, but this is not the type of disruption you want. Shortages and price increases are expected to last at the least in the near and medium term. While speed and efficiency are still important, the need to create a more resilient supply chain is now more widely recognized.
Here are my suggestions to build a more robust business from an SCM standpoint:
Diversify Supplier Base – source not only from multiple suppliers but ensure they are from different geographical locations. Also, you may want to consider pre-qualified backup suppliers in addition to your core supplier base.
Near-Sourcing – reduce the need for long shipping times. Longer lead times mean there is greater exposure to something going wrong and that you are less able to react quickly when something goes wrong. Outsourcing historically has been to developing countries to take advantage of labour costs. However, these places are more likely to suffer from political and infrastructure issues. Sourcing from local suppliers eliminates potential customs issues.
Increase Inventory – inventory provides a hedge against supply chain issues when they occur.
Leverage Technology – technological developments are increasing the visibility of the supply chain. Artificial intelligence for predictive analytics and blockchain for traceability are two state-of-the-art examples. Visibility allows you to plan further ahead and prepare for risk mitigating actions if incidences occur.
Communication –Communication with suppliers and insurance providers to understand any supply chain risk and how risks can be shared. Engage clients more frequently and manage their expectations.
Build Redundancy – Build some redundancy in your processes so that if an incident occurs, it does not stop workflows. Redundancy does not necessarily mean duplication, it could be having an alternative path or having more flexible resources that can be directed at an issue.
They are likely going to be some trade-offs between efficiency and risk management. You should have a good understanding of risk in terms of impact and probability and address them accordingly. The table below is a quick way to help prioritize your resources and efforts to risk management. Make sure you have covered the bottom right area before you address the top left area. You can make the matrix more granular and adapt it to your needs.