Beyond the buffer: Why supply chain resilience demands more than assurance of supply
In today's rapidly evolving global market, understanding the concepts of supply chain resilience and assurance of supply has become more critical than ever.
Businesses navigating yesterday’s and today’s unprecedented disruptions should consider how assurance of supply forms a key element of a supply chain resilience strategy, but does not replace it.
First, some definitions:
- Assurance of supply focuses on guaranteeing the availability of essential materials, products and services. This involves actions such as securing long-term supply agreements, building buffer stock and diversifying suppliers. Assurance of supply is about creating a safety net that ensures the continuity of supply even in the face of disruptions. It is a more reactive approach that emphasizes contingency planning to deal with unexpected events.
- Supply chain resilience refers to the ability of a supply chain to adapt to disruptions and maintain its core functions. This involves a comprehensive strategy that includes identifying potential risks, developing mitigation plans, and investing in technologies and processes that enhance flexibility and responsiveness. Resilience is not just about bouncing back from disruptions. It anticipates and prepares for them. It requires a proactive approach to risk management, considering various potential scenarios, where companies continuously monitor their supply chains and make adjustments as needed to address vulnerabilities.
Whenever a crisis hits the supply chain, companies are keen to invest in supply chain resiliency as the shortages and resulting supply chain disruption from unexpected events need to be avoided in the future. Often, this results in investing in assurance of supply activities such as long-term supply agreements or strategic inventory buffers. However, as component availability improves and supply chain disruptions diminish, so too does the focus on resiliency. Assurance of supply alone is not sufficient; building resilience into a company’s culture and into the wider supply chain culture is essential to being prepared for future crises. A resilient supply chain inherently enhances assurance of supply by reducing the impact and improving the ability to respond to disruptions in a continuous way to maintain operations and mitigate losses. Gartner advises going one step further and recommends creating “antifragile” supply chain planning that benefits from uncertainty by having processes that “create a relative gain due to uncertainty.”
Investing in supply chain resilience is not just a matter of risk management; it is a strategic imperative.
Some tips to guide you through the disruption and complexity:
- Event-driven risks: Understand the impact of potential events on your supply chain. Be prepared for unexpected events, use scenario planning and have a Plan B ready to go when needed. How will you react if an important transportation link goes down? What will you do if a geopolitical event escalates? What if your major supplier suffers a natural disaster? Run the scenarios and keep them updated.
- Data mapping: Know how your supply chain really works. Map it and assemble relevant data to evaluate the “what-ifs” so you can build mitigation strategies. Become an investigator of your suppliers’ supply chain and the data it delivers. Identify single points of failure and leading indicators to identify early warning signs of a stressed supply chain link.
Can I trust you?
Trust is still an essential foundation of supply chains, as are the inherent tensions between openness and competition. It’s a delicate balance.
In an interconnected global economy where products traverse multiple countries, suppliers and intermediaries before reaching consumers, transparency has evolved from a competitive advantage to a business imperative driven by regulatory requirements, consumer expectations and risk management necessities.
The disciplines of accurate forecasting and sharing of business plans build trust among suppliers and manufacturers. This transparency helps suppliers make better long-term investment decisions and fosters strong partnerships. Providing long-term forecasts, even with their inherent errors, is crucial for suppliers to make investment and capacity planning decisions. Long-term supply agreements can further build trust and assure the supply of critical components by demonstrating a commitment to the supplier that allows them to allocate capacity for future demand.
Ultimately, the value that comes from supply chain transparency is built on trust networks where information sharing creates value throughout the supply chain.
Key benefits
In a market where geopolitical and environmental disruptions are more frequent and severe, companies that fail to prioritize and invest in supply chain resiliency strategies risk significant operational and financial losses. Conversely, businesses that embody such strategies can create robust supply chains that are capable of withstanding and thriving in the face of adversity.
The process of identifying and addressing potential risks before they become critical issues involves maintaining upstream supply chain visibility, conducting regular risk assessments, monitoring key indicators, scenario planning, and developing contingency plans. By taking a proactive approach to risk management, companies can reduce the impact of disruptions, ensure the continuity of their operations, and identify opportunities for improvement and optimization. The work involved in gaining upstream visibility goes hand in hand with identifying supply chain efficiency opportunities and being well prepared for regulatory changes.
Adapting to changing conditions requires a flexible and responsive supply chain that can quickly adjust to new circumstances. Investing in technologies such as advanced analytics, artificial intelligence and automation helps companies achieve this flexibility. These technologies enable real-time monitoring and analysis of supply chain data, allowing companies to make informed decisions and respond quickly to disruptions with contingency plans.
Assurance of supply creates a safety net that ensures the availability of essential components and products. This can be achieved through securing long-term supply agreements, building strategic safety stock and multi-sourcing, but alone, assurance of supply does not constitute supply chain resilience.
Conclusion
Understanding the various aspects of supply chain resilience, including assurance of supply, is essential for maintaining stability and ensuring continuous operations in today's global market. By investing in a comprehensive supply chain resilience strategy, companies can create a robust supply chain that is capable of withstanding and thriving in the face of adversity.
As businesses navigate unprecedented disruptions in a hyperconnected world, prioritizing supply chain resilience is not just a matter of risk management; it is a strategic imperative. Supply chain resiliency should be embedded within a company's culture rather than treated as a one-time effort, ensuring continuous improvement and preparation for whatever comes next.