Building a Resilient Supply Chain

Best advice I can give is to Start from the bottom.

In today’s Logistics environment, building a resilient supply chain is more critical than ever. No sure way exists to overcome all the risks that comes your way. Things like the Ukrainian war and the lingering effects of the pandemic have had severe impact on just about everyone’s supply chains. Product lead times are double or triple what they used to be, and that’s if you can get the products at all. The cost of freight, raw materials, labor and finished goods have skyrocketed. Both the International and domestic US transportation systems are a mess. There are containers sitting that can’t unload, there are warehouse shipments loads that can’t be picked up, shipments are taking twice as long to deliver than before, there is a lack of warehouse capacity to store goods, and overall prices for freight, fuel, labor, and just about everything else have gone up dramatically.

Considering this decidedly negative environment, and the uncertainty of how long current conditions will last, what can you do to make your Supply Chain more resilient. Here are some suggestions.

  1. Increase your base of supply. Go from a plus 1 supplier base to a plus 3 base. Extend the geographic base as well. Keep one area from controlling and hurting your supply chain.
  2. Make and get commitments from your transportation providers to provide enough equipment to meet your extended needs. Contract for this capacity and take a “now is better than later” attitude.
  3. Expand your inventory levels and buffer safety stock levels to compensate for longer lead times. Make sure your Min/Max system is reset for larger inventories and longer pipelines.
  4. Lower both your and your customer’s expectations for OTC cycles. Product will take longer in the pipeline. Get used to it and make sure your customer acclimates to the new “normal” as well.

There are three key drivers to establishing better resiliency. “RFC” , “R”edundancies, “F”lexibility and “C”ulture change.

Increase redundancies. Hold extra inventory, increase your supplier base, and lower capacity utilization levels. By being redundant, you are giving up efficiencies. Inventory is cash, unused or not-working cash. This is the tradeoff made when carrying more inventory than your normal model requires.

Added Flexibility. Adopt standardized processes. This lets you switch production across your manufacturing network. Make it easy to substitute your production across the various sites in your network. If they handle the work in a standardized fashion then you can bounce your production and distribution around as conditions dictate, without skipping a beat.

Put key functions in sync with supply chain demands through a centralized organizational approach. Plan to postpone. Give yourself the ability to wait and develop more WIP goods that can be finished in a variety of ways. Align your procurement strategy with your suppliers. Make sure that your supplier relationships are deep and long. Don’t get caught short handed when one of them goes out of business or has a catastrophic event that impedes their ability to supply you.

Cultural change. Have processes that provide for continuous communication across the enterprise, inside and outside the building. Distribute the power for making decisions. If the power is concentrated in a few hands your organization won’t be able to handle disruption well. Those closer to the fire know how to handle it best.

Condition your teams for disruptions, how to handle them, and what the protocols are to fix them.

There are five pillars of supply chain resilience

Vulnerability

Management Culture

Procurement

Operations

Demand & visibility

Vulnerability. Assess your organizations weak links. Where are you most at risk? Shore up as best you can these points of weakness. Make yourself as bulletproof as possible. There are tradeoffs in this process. It is not cheap to build in redundancy and mitigate vulnerable spots in your supply chain. It is better to know and mitigate them on the front end than suffer the consequences on the back end. Almost a “you can pay me now or pay me later” situation.

Management Culture. Management must be fully on board to support the changes necessary to make your supply chain more resilient. They will understand the picture if you provide the correct model of the monetary costs to do nothing vs the upside if you take the right steps…NOW.

Procurement. How you buy, who you source your buys from, and where are extremely important factors in supply chain resiliency. Let’s face it, if you single source in today’s environment, you are in big trouble when that source falls down. You must investigate and understand your alternative supply sources  and put in place a blueprint of how you need to use them.

Operations. There must be a clear level of communication between the operations teams and the procurement teams.  Management must make sure that they are exchanging forecast and plans in a way that produces a clear path forward in dealing with shortage, delays, and cost increases. It is not unusual for Ops and Sourcing teams to have different sets of metrics and drivers that they use. It is extremely important that these teams operate in sync with one another. Otherwise, the results will be very disappointing.

Demand & Visibility. Not enough can be said about making the Demand mechanism as clear as possible throughout the organization.  The more visible the demand signal is, and the more time spent on how to meet it, the better the results will be. Demand signals and forecasts are difficult during normal times of stability. In today’s less stable environment the whole supply chain can get whip-sawed around by the market forces in play today. It is therefore of extreme importance for the organization to put the time in to dial in the organization to demand signal.

Making your supply chain more resilient is extremely important to the overall effectiveness and health of your organization. Spend the time necessary to align your organization on what’s needed to make it as bulletproof as possible. If you do, the reward will be substantial.

Riverside Logistics Consulting does this (supply chain analysis) for a living and would be happy to take a hard look at your individual supply chain and make recommendations on how to shore it up. This process can pay high dividends in a short period of time. If you need more information, contact Jim Durfee at 804-474-7700 extension #4. We’re here to help.