8 minute read 29 Sep 2021

Greater awareness and preparation lead to better agility, and new technology puts what was once impossible within reach.

Two people working in a construction site

How operational visibility and risk monitoring improve resilience

Authors
Matthew Burton

EY EMEIA Consulting Center Partner and Digital Operations Leader

Supply chain leader with over 20 years experience in industry and consulting. Focused on digital transformation.

Regenia Sanders

EY Consulting US-Central Supply Chain and Operations Leader

Passionate about empowering women in engineering and other data-driven fields. Auburn University graduate. World traveler and adventure enthusiast.

Kristina Albang

Consulting Managing Director, Ernst & Young Global Limited

Leader in business transformation and risk management. Passionate about diversity and inclusiveness to inspire others to achieve their full potential. Wife and proud mother of two boys.

Contributors
8 minute read 29 Sep 2021

Greater awareness and preparation lead to better agility, and new technology puts what was once impossible within reach.

In brief
  • The market includes many solutions providers, but it’s worthwhile to first assess the problem, not leap at a toy that looks impressive in the boardroom.
  • Added capabilities can help your organization better understand the dimensions of risks to reframe them as opportunities.

A year and a half into the COVID-19 pandemic, businesses are dealing with a landscape in which surging customer demand in one area coexists with strict lockdowns elsewhere, cracking open wider fissures in global supply chains. Against this backdrop, companies are also wrestling with global shortages in semiconductors, aluminum, rare earth minerals and more. Amid these sources of disruption, organizational resilience has re-emerged as a board priority.

While today’s overall supply chain disruption is unprecedented, the means for dealing with it are not, with real solutions to improve end-to-end visibility, simulation and risk monitoring. Advances in technology — such as internet of things (IoT) sensors, artificial intelligence (AI) and software such as control towers — have put the goal of end-to-end visibility more in reach.

However, the choice of solutions providers, from startups to established players, can be overwhelming, creating confusion for some about what their next steps should be. The right path forward should not only address risks, but reframe them as potential opportunities. Here’s what companies can do to acquire new capabilities and strengthen existing ones, to effectively confront the challenges of today and tomorrow.

Developing a business case

Given the waves of disruption ahead, resilience needs to be a priority every day — not just in times of crisis — to meet changing expectations, minimize potential risks and seize opportunities.

For instance, when disaster struck on the other side of the world, one global technology company that had the right digital platform in place was able to respond at pace. The technology identified and surfaced the problem by looking at data, analyzed the impact to production schedules and highlighted supplier risks, then automatically called team members into an online group chat and made suggestions in real time. The capability to make decisions and pivot when events are occurring is not an imagined future state for companies with far-flung global operations. In fact, this happened a decade ago, during the Fukushima nuclear disaster triggered by an earthquake and tsunami.

However, without proper consideration, organizations may be shoveling time and effort into a shiny new toy instead of a solution. Facing delayed shipments, one business spent a fortune on real-time freight visibility — a tool that wowed the boardroom and can be extremely useful. But in this case, it didn’t resolve the true issue: consistent delays caused by bottlenecks in finishing paperwork and loading the trucks on time. If you’re not focused on the right problem to solve and the business benefit you want, you can’t pinpoint the proper way forward. Be ruthlessly focused on your organization’s real pain points and the value that you want to achieve.

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Chapter 1

Driving end-to-end visibility

Too many organizations today are blind to bottlenecks and shortages — until the fallout is right in their laps.

In the wake of pandemic-related lockdowns, companies made investments in greater supply chain visibility and inventory management — crucial steps toward gaining a full picture to help contend with sudden or long-term disruption. However, EY research shows they still need to work on the data connections and end-to-end visibility, beyond their own internal operations. Key steps to take for additional monitoring include:

  1. Identify critical parts and critical Tier N suppliers (the suppliers of your suppliers and beyond): It would be a staggering and perhaps impossible effort for most large organizations to gain full visibility down to the Tier N level for all their suppliers. Setting priorities based on risk is a worthwhile starting point. The supply chain visibility that businesses require must factor in data from these suppliers to adequately surface risks and create contingencies.
  2. Develop relationships centered around trust: Many suppliers are constantly worried about being disintermediated, so they may be wary about providing too much data. Those organizations that have succeeded in working with their key suppliers focus on building trusted relationships and developing areas of mutual interest as business partners to plan for disruption. Going alone isn’t a good plan for either side: the supplier can get stuck with inventory when orders don’t materialize, and your own organization can encounter bottlenecks if just one part isn’t available for a complex product. With trust, ecosystem partners can then use tools such as platforms that encourage collaboration and transparency about performance, gaining the ability to collectively adjust plans and make better decisions based on visibility and analytics.
  3. Revisit contracts and create benchmarks: Contracts with suppliers can stipulate expectations around what data should be made available, such as inventory holdings, and including access, audit and review rights. Many companies today have such stipulations around meeting environmental, social and corporate governance (ESG) objectives — for example, to know more about child labor and other human rights concerns, or about climate change impacts that are increasingly being debated under nonfinancial reporting frameworks.
  4. Deploy technology in your operations to build a control tower: For companies with more mature supply chain capabilities, IoT sensors on manufacturing equipment and tracking mechanisms in logistics — along with external data from suppliers — can be united with AI and machine learning to produce actionable insights. Relying on these technologies and dashboards, control towers act as visibility solutions for surfacing bottlenecks, responding to events, optimizing resources and making recommendations on what to do next.
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Chapter 2

Enabling simulations and risk monitoring

With a shift in mindset, better insights from data and new technology capabilities, an organization can prepare — and thrive.

No doubt your business is always performing analyses of some sort — for instance, what would be the impact if you closed two warehouses in favor of one in another location? However, many companies today lack a sophisticated capability for scenario analysis in their supply chains. These efforts not only prepare you to minimize risk, but also to consider how sudden changes can trigger new opportunities for those who are most prepared. Here are actions to take for organizations that have made advances in their supply chain visibility and data capabilities:

  1. Set priorities and shift your mindset as a first step to modernizing risk management: Organizations need to maintain an adaptive risk universe to identify emerging upside, outside and downside risks to prepare for change and take actions as needed. Today, risk management is not just about confronting the top 10 to 20 risks each year: it must be responsive to environments that are constantly evolving, within and outside of the organization. Narrowing your focus to what’s most important is a crucial place to begin for developing foundational business continuity, disaster recovery and crisis management plans, including critical dependencies and alternate recovery strategies. Analyze the cause and effect of key risks to perform scenario planning based on your organization’s strategic priorities, and quantify the risk impact to priorities. Technology is providing new ways to strengthen these plans with actual data.
  2. Explore tools for scenario planning and simulations: Supply chain simulation software brings in data about weather patterns or disasters, hotspots for social unrest, and geolocation information on parts — allowing you to predict and quantify risks, such as a tsunami in East Asia, a blockage in a major canal or political unrest anywhere in the world. Risk intelligence engines can also monitor news sources and other external data to anticipate scenarios and risk events. Routine scenario planning not only helps minimize disruption, but also identifies new business opportunities. Companies can look at their entire supply chains and ask questions about where products are made, how they’re distributed and whether their supplier bases are diverse enough to withstand shocks. Integrate these analyses into governance, risk and compliance (GRC) programs to be dynamic on how the second and third lines of defense are monitoring emerging risks. It’s also vital to routinely test and update these plans as the business landscape shifts and your strategies evolve. 

3. Go further with a digital twin. Digital twins are virtual replicas of a supply chain (or a product or process) to act as a laboratory of sorts for simulations and risk monitoring. A supply chain is recreated virtually from end to end through a more aggregated lens, involving some of the data points and sources we’ve already discussed — as well as service levels, network optimization and others. Digital twins can connect to your Enterprise Resource Planning (ERP) system or the systems from your suppliers, and (less ideally) manual data downloads can be used as well. This parallel version of the supply network supports prescriptive decision-making based on the world as it is, not gut instinct. As noted earlier, if digital twins are focused on the right areas, they can be a powerful tool to improve resilience.

4. Use these capabilities to approach risk differently. Maintaining resilient and networked supply chain and manufacturing processes are critical to customer innovation and responding more quickly and proactively to changing dynamics — and reframing your future. Anticipating disruption and its impact through these capabilities equips your organization to better identify not only downside and outside risks but upside ones as well: the risk of letting an opportunity slip through your fingers. Business leaders that look beyond managing risk to building stakeholder trust and reframing risks into opportunities can reposition their organizations for long-term value creation. Crisis management will always be important — but the bigger play is to reimagine your business, not merely wait to be disrupted and play damage control.

Summary

Given the waves of disruption ahead, operational resilience needs to be a priority every day, not just in times of crisis, to meet changing expectations and minimize potential impacts. End-to-end visibility, simulations and risk monitoring equip organizations to step-change their resilience — to better anticipate issues, mitigate their risks, and also offer road maps for seizing the opportunities within them.

About this article

Authors
Matthew Burton

EY EMEIA Consulting Center Partner and Digital Operations Leader

Supply chain leader with over 20 years experience in industry and consulting. Focused on digital transformation.

Regenia Sanders

EY Consulting US-Central Supply Chain and Operations Leader

Passionate about empowering women in engineering and other data-driven fields. Auburn University graduate. World traveler and adventure enthusiast.

Kristina Albang

Consulting Managing Director, Ernst & Young Global Limited

Leader in business transformation and risk management. Passionate about diversity and inclusiveness to inspire others to achieve their full potential. Wife and proud mother of two boys.

Contributors