Welcome to supply chain planning 2023: Lights, camera, action!
Disruptions are here to stay
Disruptions have been a constant factor rather than an exception over the past years. At the moment record-high energy prices and ongoing geopolitical tensions are causing major headaches for companies. According to the Financial Times, over 70% of German manufacturers needed to halt production temporarily due to surging gas prices. Unfortunately 2023, with a potential softening of the economy ahead, does not seem different.
A Gartner study shows “89% of companies experienced a supplier risk event in the past five years, yet awareness and plans to mitigate risk lack maturity”
Supply chain disruptions have potentially severe consequences, such as increased operational costs, damage to your brand’s reputation, and loss of customers and sales. In response, companies have applied a range of measures to continue operations, with one of the most popular being increasing buffers and safety stocks along the supply chain. Toyota, once renowned for its ‘just-in-time’ policy, implemented a ‘just-in-case’ approach, which involves building up inventory buffers. As a consequence, its inventory has increased by approximately 40% over the past 10 years.
With increasing supply chain costs, companies now need to adopt more effective, long-term approaches to remain competitive. In this blog, we outline how supply chain leaders can anticipate and mitigate risk more effectively using a variety of strategies to improve their company’s supply chain resilience.
Building supply chain resilience
The traditional approach of adding more buffers ad-hoc, such as increasing stock or capacity, isn’t affordable in the long-run and results in the bullwhip throughout the entire value chain. There is a wide variety of measures companies should consider in order to absorb the impact of disruptions more effectively, making their supply chain more flexible and agile to respond quickly.
As a first step, it is key to understand your supply chain vulnerabilities: you need to have a deep understanding of where the weak links are. Today’s supply chains are complex, multi-tiered networks, with tens of thousands of suppliers and facilities around the globe. Even seemingly small disruptions can have major consequences, therefore it is important to identify and prioritize critical suppliers and manufacturing locations all along the end-to-end supply chain.
Once critical suppliers and locations are exposed, appropriate proactive measures and resilience strategies should be considered. These strategies come at a cost, and as no company can afford to implement measures across the entire supply chain, trade-offs need to be made. Depending on the criticality of the supplier, different strategies should be selected.
Overall, supply chain leaders should consider a combination of these strategies to improve their supply chain’s resilience, mitigating the impact of disruptions.
People, processes, and technology: Are you on the move?
Identifying your company’s exposure and defining effective resilience strategies is a complex task that requires the right personnel, processes, and technology. It also requires a shift in focus from short-term cost minimization, inventory reduction, and asset utilization to a balance between supply chain risk and flexibility. While these efforts may involve upfront costs, they should be carefully evaluated as they have the potential to pay off in the long run.
Are you interested in evaluating and improving your supply chain network to increase its resilience, but need support? We at EyeOn are here to help you navigate this journey, be it from ‘what-if’ scenario planning, or supply chain risk modeling, to redesigning your supply chain for resilience! Our team has the experience and expertise to support projects and assist you in building in-house capabilities. If you want to quickly and sustainably implement supply chain risk management, our Planning Services team can help with a digital twin as a service. We create and maintain an up-to-date model of your supply chain and are prepared to run an assessment with live data when necessary.
In short, we are living in a world of constant disruptions, ranging from regional to global, from more predictable to completely unforeseen. Do you know the impact a significant event would have on your supply chain? How much visibility do you have on your supply chain? To what extent of the balance does your company want to have resilience and agility? To ride out the storm and make the most of what 2023 will bring, these are a few powerful questions to ask.
Remember to keep an eye on this page where we will address further supply chain challenges you will be facing this year.