According to a Statistica survey, only 6% of companies in the energy & industrial industry reported no negative impacts from supply chain disruptions related to Covid-19.¹ Of those who were impacted, more than half reported losses greater than 50 million USD in 2020.
The pandemic has taken most of the credit for supply chain disruptions over the past two years, but unexpected disruptions are caused by myriad factors from environmental changes to geopolitical events. Hurricane Ida, for example, damaged industrial plants that produce products like plastics and pharmaceuticals, and forced an already limited supply of trucks to be diverted. The past several years have also seen significant disruptions from geopolitical events like Brexit and the US-China trade war, each of which impact the costs associated with buying, selling, and shipping goods.
Around the world, the flow of materials, goods, and services continues to be derailed by factors like policy changes, the availability of materials, changing supply routes, closures and lockdowns, and unexpected changes to consumer behavior. At the same time, those very supply chains have been a critical infrastructure for the delivery of essential goods like medical supplies, PPE, and food.
Disruptions to supply chains have come in many forms before the pandemic, and will continue to occur long after it has passed. Supply chain management is therefore a core business competency that has ramifications for every company’s profitability and reputation. The effective planning and management of changes, like seasonal rises in the demand of a product, allows efficient adaptability, minimizing the negative consequences of those disruptions. But as we’ve seen, some disruptions to the production flow of goods and services are difficult to plan for.
In the wake of insecurities that have been illuminated and exacerbated throughout the pandemic, senior executives across industries have plans or have already taken steps to improve the flexibility and resiliency of their supply chains.² The pathways for improved resiliency vary from industry to industry. An increasingly common approach is to move away from the industry standard just-in-time manufacturing approach by increasing stored inventory.
Just-in-time manufacturing, the production model where items are created to meet demand rather than to create surplus, was made popular in Japan where post-war unemployment and limited resources forced manufacturers to produce smaller product batch sizes. The model has since spread around the world, becoming an industry standard due to its propensity for reducing waste, improving quality by reducing product defects, reducing labor and space associated costs, and increasing agility. But the downside, as we’ve seen in recent years, is that there is less ability to prevent supply chain disruptions from impacting the customer. This is proving to be too great a risk to bear, leading many companies to increase their inventory surplus in order to meet future demand even when supply chain disruptions delay important material deliveries.
Another approach to improving supply chain resiliency is to nearshore suppliers. Over the past several decades, the appeal of sourcing products and materials from farther away has increased dramatically. The ability to rapidly ship goods around the world means that markets have opened up for manufacturers, creating more competitive pricing. The risk with this approach, as the pandemic illuminated, is that the farther products and materials have to travel to reach manufacturers, the more opportunities there are for serious delays. Global shipping is also significantly impacted by market changes like the rising cost of oil, which drives up shipping costs accordingly. To prevent the kinds of delays and skyrocketing prices that came with the pandemic, some manufacturers are looking to closer suppliers for meeting their needs. But as many companies are finding, nearshoring dramatically reduces the selection of suppliers, which may mean lower quality or higher cost goods.
Whether companies plan to increase inventory, begin nearshoring suppliers, or take another approach altogether, de-risking the supply chain to minimize the effects of disruptions boils down to management, which in our digital world, is helped or hindered by your company’s toolset.
Modern digital tools, and advanced analytics more specifically, are directly linked to successful supply chain planning. Of companies surveyed by McKinsey, those who reported no supply chain problems were 2.5 times more likely to have had preexisting advanced analytic capabilities.³
Solutions like Stratizant’s supply-chain reliability management platform, FullConfidence, offer the kind of advanced analytics that not only de-risk supply-chains, but actively improve their efficiency and reliability.
When vendor management is a manual process, there is limited visibility into supplier issues and late deliveries, leaving no time to recover. FullConfidence consolidates information from all the organization’s vendors into one bespoke dashboard, applies AI/ML, and converts supplier performance data for predictive insights in near real-time. This allows organizations to prepare for delays and choose suppliers that have a track record of reliable performance.
Whether you choose to begin nearshoring suppliers, increasing inventory, or maintaining global just-in-time supply chains, using an advanced analytic management system like Full Confidence is an effective way to de-risk your supply-chains and optimize the efficiency and reliability of your organization.
Endnotes
Placek, Martin. What has been the negative impact on your company's business outcomes as a result of supply chain issues related to COVID-19? April 2022. https://www.statista.com/statistics/1259124/loss-supply-chain-disruption-industry/
Alicke et al. How COVID-19 is reshaping supply chains. McKinsey & Company. November 2021. https://www.mckinsey.com/business-functions/operations/our-insights/how-covid-19-is-reshaping-supply-chains
Lynn, Rachaelle. What is Just-in-Time Manufacturing? Planview. https://www.planview.com/resources/guide/what-is-lean-manufacturing/just-in-time-manufacturing/