Supply chains are important. Despite this, supply chains tend to be overlooked and are often taken for granted. But as with many cases, businesses have learnt this the hard way.
The Covid-19 and Ukrainian crises have catapulted the supply chain and related issues onto the front pages across all news platforms. Supply chains were, and perhaps now are, the difference between insolvency and survival.
Businesses need to be proactive in their supply chain approach, and not just reactive in times of crisis. This is not only for survival. Engineering optimal supply chains can create a competitive edge for a business. This begins with understanding the key issue of supply chain resilience.
This blog discusses the concepts of resilience and redundancy in the context of supply chains. It offers advice on how to conduct supply chain management to maximise efficiencies and optimise supply chain performance.
What is supply chain resilience?
Fundamentally, supply chain resilience refers to the ability of a company to bounce back from a large disruption. It is the capacity to absorb stress, quickly return to normal performance levels after shocks and thrive in volatile environments.
There are six pillars of supply chain resilience:
- Increasing the ability to absorb shocks
- Redesigning the global network
- Setting new parameters for supply chain buffers
- Proactively managing suppliers
- Reacting faster when disruption occurs
- Managing the multi-enterprise supply chain.
A detailed discussion of these pillars can be viewed on the BCG website here.
What is supply chain redundancy?
Often, the best way to ensure your company’s ability to quickly reconfigure and recover during a crisis is to institute redundancies in the supply chain. Supply chain redundancy is the ability to withstand any failure at any point in the primary supply chain by using backup resources. This can be achieved through holding extra inventory, maintaining low capacity utilisation, using multiple suppliers, etc.
Redundancies throughout the supply chain act to:
- Support any weak spots in the supply chain
- Prevent slowdowns or shutdowns
- Provide safety stock in case of delivery failures or losses
- Ensure competition, availability and design quality when a redundancy of suppliers is implemented.
Building redundancies can ensure lean operations because they are designed to help facilities avoid the significant waste of time, effort and money involved in a system breakdown. Moreover, building redundancies can have various positive spillover effects, including contracting with multiple suppliers to reduce geographic risk, and hence increase supply chain resilience.
The Covid-19 crisis was a wake-up call for numerous supply chain managers. Before the pandemic, companies focused on eliminating redundancy to reduce fixed costs and streamline operations. This, however, came at the expense of diminished effectiveness in the event of a crisis.
Primarily, the company must bear the costs of the redundant stock, capacity and workers, which can prove to be a very expensive measure. Such excesses may lead to the unintended adverse effect of increasing costs and reducing the efficiency of operations.
Thus, based on a company’s internal and external characteristics, it must decide the optimal level of redundancies to safeguard itself by taking this tradeoff into account.
How to determine the optimal supply chain
Principally, there is no rulebook or secret formula to optimise the supply chain. And it is difficult to articulate what a perfect supply chain looks like. It will vary with industry, market size, market share, etc. It really is dependent on the characteristics of your industry and the nature of your business. But the supply chain must be tailored to your business objectives and align with your overall business strategy.
In addition to creating redundancies, according to the Harvard Business Review, there are two other essential components to achieving resilient supply chains: building flexibility and changing the corporate culture. Essentially, these are the three cogs that all need to co-exist so that any business can achieve resilience.
Leading companies are, however, developing innovative capabilities to re-engineer the interworking of their supply chains. For example, risk-focused analytics engines, simulation, and end-to-end transparency are all being utilised to design optimal supply chains.
The approaches are endless. Whether you are geared to create cutting-edge supply chain tools to reconstruct your supply chain or simply find the optimal level of elements of supply chain resilience, it is imperative to invest in your supply chain. In the long run, where only the fittest survive, supply chain resilience will merely be a requisite for operating in any industry. This should be taken as an opportunity to engender superior business performance, and not be seen as a threat to the existence of your business.
What OCI can do
Here at OCI, we accelerate business growth through tailored commercial management solutions, leveraging our global network and premier expertise to optimise the performance of large corporates and governments. We work with clients from across all areas of the globe and we support a diverse range of companies spanning several industries. As we’re industry and product-agnostic, we can confidently manage the supply chains of all of our clients – starting from day one.
For more information about how OCI can support your business across any supply chain, including optimising or building resilience in your supply chain, please contact us.