6 Ways to Create More Resilient Manufacturing Supply Chains
Published on 9 October 2020
As companies shake off the impacts of COVID and look to the future, many are reassessing their global supply chains and finding ways to make them more resilient, agile, and reliable.
Right now, manufacturers worldwide are reimaging their operational approaches and working to ensure that future, COVID-like events don’t completely derail those networks. It’s no wonder, really: According to a July Institute for Supply Management (ISM) survey, 97% of companies had already been—or were expecting to be—impacted by the coronavirus.
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Taking aim at the world’s manufacturing supply chains, COVID enacted a particularly steep toll on those global networks. Few sectors were spared, with the World Economic Forum anticipating “severe implications for international production networks” and a possibility that those impacts will span years.
“It happened faster than anyone could imagine,” Bain & Co., points out. “As China sent workers home and shuttered businesses in January to contain the coronavirus outbreak, the steady flow of vital parts to global supply chains slowed or stopped. The unexpected disruption sent shock waves through boardrooms around the world, just as the COVID-19 pandemic began to spread.”
A Scaffolding for Long-Term Business Resiliency
As manufacturers work to mitigate the current impacts of the pandemic while also fortifying their supply chains for the future, many of them are focusing on “resiliency” as a core value. Defined by McKinsey & Co., as, “equipping organizations to react more flexibly and efficiently to events that are beyond their influence by decoupling location and business outcomes,” resiliency incorporates people, processes, partners, and technology.
Achieving resiliency requires a combination of speed and discipline; a focus on creating transparency across multi-tier supply chains; and accurate inventory visibility along the entire value chain. To improve resiliency, companies also have to be able to assess realistic final-customer demand; optimize production and distribution capacity while also ensuring employee safety; identify and secure logistics capacity; and effectively manage both cash and net working capital.
Combined, these forces can drive transformative changes that would otherwise take years to plan and put into effect. Accelerated by COVID’s massive impacts on the supply chain, these changes are now taking place within mere months, providing the scaffolding for long-term business resiliency.
6 Steps to Take Now
Here are six ways manufacturers can begin infusing more resilience into their global supply chains:
- Assess your risks. “The first step to improving resilience is to gain a clear view of supply chain risks at the company, business segment, or product level, depending on which level is like to be actionable for a given organization,” Boston Consulting Group advises, noting that supply chain resilience should be measured for all three portions of the value chain: sourcing, making, and delivering.
- Use inventory and capacity buffers. According to Gartner, buffer capacity is the most straightforward way to enhance resilience, whether in the form of underutilized production facilities or inventory in excess of safety stock requirements. The challenge is that buffers are expensive, and supply chain leaders may have a hard time justifying them to the C-suite. “Leading companies use buffers in the form of surge capacity for new product launches or expansions into new growth areas,” it says. “Organizations can also create buffer capacity by using contract manufacturers strategically for their surge needs.”
- Invest in automation and supply chain software. In a Forbes article about the economics of supply chain resilience, the author discusses how investing in resilience with digital capabilities at the core can pay off not only in the long term, but also in the short term. “Most importantly, digital tools can enable business leaders to build agile and structural resiliency measures into their operational models regardless of where, how, and when a shock occurs,” she adds. “Automation can increase efficiency by reducing input costs and increasing productivity, while also giving companies more, and in some cases new, options to maintain workforce productivity in the event of closures from a severe weather event, or a pandemic.”
- Leverage digital supply chain control towers. In a recent podcast, McKinsey’s Ed Barriball points to the technology-enabled control tower as a key to future resilience for companies across all industries. “We recommend that clients stand up a control tower that will enable them to have end-to-end visibility into things like, ‘Where do we have our inventory?’ and ‘How much inventory do we have?’” Barriball says, “such that you have a real-time picture of your information and informing the decisions that nerve center is making.”
- Explore new source countries. To increase its resilience, a motor manufacturer might add redundant capacity and qualify parts suppliers in more locations while also maintaining production in China in order to keep costs low and serve the Chinese market, BCG suggests. It could also take actions to improve real-time visibility into its supply chain and strengthen its risk management. “An apparel or consumer electronics manufacturer, on the other hand,” it adds, “may decide the best approach is to migrate its supply chain by shifting a portion of production to Vietnam, India, or other countries that are not the target of high tariffs or trade uncertainty.”
- Think global, act global. At the height of the crisis, Kearney says some supply shortages were caused by lack of capacity. By coordinating logistics within and across global value chains, and using new technologies to enable much better visibility across the entire ecosystem, similar headaches could be avoided. “Connecting other applications such as blockchain and IoT sensors together could also speed things up, for example by reducing customs clearance time,” Kearney adds.
It’s on Their Radar Screens
A recent Gartner survey found that just 21% of companies have what they consider to be “highly resilient networks,” which the firm defines as having good visibility and the agility to shift sourcing, manufacturing, and distribution activities around fairly rapidly. The rest of the companies don’t plan to sit around and wait for another disruption to strike.
“Increasing resilience will be a priority for many as they emerge from the current crisis,” Gartner points out. “with more than half of the companies surveyed expecting to be highly resilient within two to three years.”