7 minute read 10 Jun 2022

Moving from visibility of the supply chain towards visibility of the supply chain network

By Tom Van Herzele

EY Belgium Supply Chain & Operations Partner

Consultant at heart – passionate about building a better working world – hobby chef and golfer.

7 minute read 10 Jun 2022

As global disruptions are impacting supply chains as a whole, supply chain resilience is key to mitigate exposure to threats.

This article is part two of a two-part series where we discuss disruption, business continuity and viable strategic solutions. Read the other part here: Leveraging supply chain business continuity planning in a disruptive environment.

In brief

  • Disruptions can no longer be seen as one-off events.
  • Companies want to decrease exposure to disruptive events throughout their supply chain.
  • There are 6 steps towards a resilient supply chain: Supply Chain Transparency, Risk Assessment, Strategic Inventory Planning, Supplier and Raw Material Alternatives, Production Flexibility, Lean and Cost Optimized Supply Chain.

Supply chain disruptions are inevitable. Over the past 15 years, different economic and geopolitical events have disrupted the global economy and society. Restrictive trade measures have increased almost threefold since 2017 with the Covid-19 crisis and the Russia – Ukraine conflict being the latest culprits. Disruptions, regardless of their origin, call for significantly increased resilience in supply chain management. It is therefore vital for companies to implement flexible business models that can thoroughly withstand disruptive events.

The high degree of integration within the global economy causes disruptive events to propagate across countries and industries, affecting global supply chains as a whole. Supply chain visibility and traceability are key to understand and mitigate exposure.

How can companies decrease their exposure to disruptive events throughout their supply chain? 6 steps towards a resilient supply chain.

1. Supply chain transparency as the ultimate pre-requisite

Supply chain mapping allows organizations to develop strategies to react to unexpected events. For a supply chain mapping to help companies shield themselves against threats, it should entail as much as possible the entire supply chain network and therefore look beyond Tier1 and 2 suppliers.

The main barrier for achieving this supply chain transparency is the willingness of companies to participate in data sharing. Information sharing within the supply chain network increases the efficiency of a supply chain, as well as its transparency. However, there are risks involved in information sharing within your supply chain network. The main one being (non-)intentional leakages of sensitive data to other partners. Data leakages could have massive implications, ranging from privacy issues, to the loss of your competitive advantage. Therefore, third party regulators are often used to control the risks involved in information sharing within a supply chain network.

2. A risk assessment to benefit from beyond risk mitigation

The identification of all stakeholders of your supply chain network indicates the possible risks to disruptive events. By understanding the different relationships within the network, risk mapping becomes easier. Asking upper tier suppliers to join this process can increase efficiency.

After understanding the nature of the relationships within the supply chain network, an acknowledgement and assessment of risks follows. Through data management, the information flow throughout the entire network can be analyzed. Based on the findings that come from these analyses, targeted optimizations of your network can be executed.

Subsequently, an assessment of the entire network for compliance with all regulations regarding prohibited partners and conflict zones can be made. Non-compliance is heavily penalized and would also lead to serious reputational damage.

Risk management offers benefits beyond risk mitigation of your organization towards disruptions. As mentioned in the first article of this series, leaders can propel their company forward in times of disruption by having a cautious vision on business continuity planning. Through supply chain mapping, leaders can identify where value is added or lost. The entire supply chain network will benefit from a strengthened and more integrated chain.

Risk management tools, with a focus on key commodities and the extended supplier network, can provide insights into the supplier network. The tools make use of enhanced technology and analytics to ensure ongoing screening. Key insights into historical data, as well as prescriptive analytics will support decision making.

The key success factor for a successful permanent risk control is moving from descriptive and predictive analytics to prescriptive analytics.

3. Strategic inventory planning to balance scarcity on the market

A general assessment of which inventory components are at risk is indispensable in the current volatile working climate. A more strategic stock instead of just a safety stock for key materials can decrease risks substantially. Lean inventory policies for critical components could make companies shut down their entire production practices for longer periods of disruption. Not being able to procure, produce or deliver products in affected countries has a tremendous impact on accessing (raw) materials and can lead to a declining turnover.

Where safety stock is generally regarded as a level of additional quantity of an item in the inventory to reduce the risks of this item running out of stock, strategic stock goes even further. When maintaining strategic stock, you prepare inventory of your essential materials to be able to withstand a long period of scarcity caused by disruptions. Giving the volatile (geo)political conditions, disruptions can no longer be seen as one-off events and maintaining strategic stock can thus be seen as a hedging strategy in your supply chain.

4. Onshoring as a lever for cost reduction and meeting sustainability targets

One of the critical risks identified for most companies is the dependency on suppliers and raw material availability. By focusing on multiple sourcing locations for key commodities, reliance on concentrated supply hubs will decrease by identifying new suppliers and transport routes. Reliance on single-source geographies has led to full production system shutdowns as well as fundamental shortages impacting critical medical and food supplies.

Onshoring, if possible, can have its advantages: a more controllable and culturally integrated supply chain network, domestic instead of foreign dependence and a possible higher quality of products and infrastructure. Onshoring can also be seen as a measure to decomplexify your supply chain. There is a tendency in supply chain management to opt for more regionally controlled distribution centers. This increases customer fulfillment rates and mitigates transportation issues in the process. On top of this, the carbon footprint of a company will diminish due to the more controlled geographic layout of the distribution map. A more resilient supply chain can be complementary to a more sustainable supply chain specifically when the costs are balanced and better understood.

When maintaining different supplier relationships, companies put themselves in the position to react quickly to a continuously changing playing field. The possibility for companies to adapt to changing geopolitical and economic conditions will bring value in both negotiations and crisis management.

5. Production flexibility to increase responsiveness

Operations in conflict regions could be impacted drastically. This forces companies to anticipate an interrupted production schedule. The duration and impact of disruptions are uncertain. Analyzing possible scenarios based on the exposure of the supply chain network to external events will increase responsiveness in times of crises.

When physical workspaces are built in a more flexible way and human capital covers a wide range of skills, companies are able to react quicker when disruptions hit. Coordination mechanisms to manage dependencies can increase flexibility, and thus responsiveness, even further. An increased flexibility in production accelerates new market introduction for companies. By being able to react quicker, companies can adapt their production to continuously changing customer demand.

There is an unprecedented volatility in both customer demand and disruptions that forces supply chains to be more responsive than ever in both inventory planning and production. There is a surge in focus on planning technology, that helps achieve visibility and agility in planning. Companies have been moving towards this evolution slowly, with focus and investments accelerating in the past 2 years.

6. Lean and cost optimized supply chain to increase customer retention

The disruptive nature of today’s working climate entails a continuously increasing pressure on the supply chain. Cost monitoring in supply chain management and understanding the implications of changes in commodity prices will help companies in developing accurate profitability strategies. With supply chain bottlenecks continuing, the pressure on freight modes will increase further. Only a small price increase in basic commodities leads to a large reduction in purchasing power for certain customers.

General supply chain constraints and increasing input costs force companies to focus more on efficiency initiatives and profitability strategies. Cost monitoring and subsequent analyses allow companies to perform targeted optimizations in their cost structure. Recurring and sustainable savings will lead to cost optimization. The ability to adapt your cost structure instead of passing difficulties on via product pricing, will increase customer satisfaction and prevent the loss of customers.

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A natural evolution towards more resilient supply chains is ongoing. The current crisis situation and disruptive operational climate only reinforces this trend. By preparing accordingly, supply chain leaders can propel their supply chain forward and gain a competitive advantage. Today’s competition is no longer between companies, but is between supply chains. Supply chain network visibility increases efficiency and performance.

About this article

By Tom Van Herzele

EY Belgium Supply Chain & Operations Partner

Consultant at heart – passionate about building a better working world – hobby chef and golfer.