In a post-pandemic world, rife with geopolitical instability, inflation, and climate uncertainties, supply chain risk is at an all-time high. A recent survey by McKinsey showed that in the past year, nearly all businesses, regardless of industry, have suffered due to supply chain issues.
We‘ve all seen the consequences of supply chain disruption in action. From grocery hoarding during the COVID-19 pandemic to production delays caused by the Evergreen container ship stuck in the Suez Canal, supply chain issues can cause a world of pain.
Navigating this unusual climate is undoubtedly a challenge. To that end, investing time and effort into mitigating supply chain risk and building resilience is more important than ever.
But what are the best strategies for supplier risk mitigation? And how do you know when you have established a resilient supply chain? We explore these questions through the following topics:
- What makes a resilient supply chain?
- 3 strategies to master supply chain resilience
What makes a resilient supply chain?
A resilient supply chain is one that can withstand and recover from disruptions. As supply chains become more globalised and complex, the chances of frequent disruptions become more likely. Under these circumstances, mitigating supply chain risk is critical.
A supply chain is considered to be resilient when it has the ability to overcome all the different types of supply chain risk that exist. These include regulatory risks, environmental risks, operational risks, and technological risks. To find out more about types of supply chain risk, read our in-depth supply chain risk management guide.
A resilient supply chain is also flexible; i.e. it has the ability to adapt to changing circumstances, such as shifting demand or supply shortages. Supply chain risk is also reduced when the relationship between suppliers and logistics partners is strong and both parties are able to communicate openly during tough times. Finally, a resilient supply chain is diverse. Spreading your supply chain across multiple suppliers and locations can greatly reduce supply chain risk.
3 strategies to increase supply chain resilience
1. Create a diverse manufacturing ecosystem
Businesses can use the following diversification strategies to reduce supply chain risk:
- Multisourcing:
This involves getting raw materials or parts from multiple suppliers rather than relying on a single source.
For instance, during the global semiconductor shortage in 2020, companies with diversified supplier bases were better positioned to weather the shortage because they had multiple sources for critical components. When one supplier faced production issues or shortages, they could turn to alternative suppliers to maintain their production lines.
- Nearshoring:
This entails sourcing materials and components from nearby regions or countries. This approach reduces lead times and lowers transportation costs, thereby significantly reducing disruptions and supply chain risk.
For instance, since the COVID-19 pandemic, many US manufacturers have reshored production from China to Mexico or Central America to reduce reliance on long-distance supply chains. The strategy has proven to be so effective that Mexico has now overtaken China as the biggest exporter of goods to the US.
2. Increase visibility
By leveraging advanced technologies like IoT and RFID, businesses can track the movement of goods in real-time, gaining granular insights into their supply chain operations. This real-time visibility enables proactive identification of potential bottlenecks, delays, or disruptions.
For instance, if a shipment is delayed due to a traffic jam or inclement weather, businesses can be alerted. This will allow them to take relevant corrective actions, such as rerouting the shipment or finding alternative transportation options.
Moreover, employing data analytics tools can help uncover hidden patterns and anomalies within the supply chain data. Company Watch’s portfolio management solutions allow risk managers to easily track companies, manage risk exposure, and monitor fundamental changes as they happen.
3. Conduct regular risk assessments
Because the types of supply chain risk you might face are heavily dependent on conditions outside of your control, it is crucial that you conduct ongoing risk assessments on your supply chain. This allows you to update strategies and switch out suppliers if needed before disruptions occur.
With Company Watch, you can monitor your supply chain consistently. Any risks are immediately flagged on the platform. Guided by the information from the platform, you can make informed decisions about your suppliers and enhance your supply chain risk management.
Key takeaways
- A resilient supply chain is one that can withstand disruptions caused by all types of supply chain risk factors.
- Consider multisourcing and nearshoring to create a diverse supply chain.
- Utilise Company Watch to monitor your supply chain and make informed decisions about suppliers to reduce supply chain risk.
