7 supply chain best practices helping companies navigate disruption

Search “supply chains” on the web and hundreds of articles will pop up with a similar theme: “Global supply chains are broken.” Politicians blame global supply chain pressures for disrupting the flow of goods onto store shelves and sparking high inflation. Supply chains have become a scapegoat for all sorts of problems, but, despite the bad press, many companies are successfully managing supply chain stress.

Supply chains have been incredibly resilient amid the COVID-19 pandemic. Pent-up demand is the primary cause of the spike in inflation, not supply chains. In fact, supply chains are surprisingly resilient amid labor shortages, continuous pandemic-related stops and starts, equipment shortages and cost inflation.

Last year proved volatile for shippers, with many of our clients seeking support with ongoing supply chain disruptions. While insurance can provide some risk transfer, operational solutions can create supply chain resiliency.

COVID-19 is not the first pandemic to disrupt business. SARS, Ebola and avian flu disrupted global supply chains in recent history. Meanwhile, West Coast port disruptions and trucking shortages are old news dating back 20 years. More recently, tariffs and political shifts throughout the world have caused additional logistical challenges. Last year, the Suez Canal blockage and severe weather events caused temporary problems too.

We have found that our clients that recognized emerging risks to their supply chains and then adjusted their operations are weathering the current issues without too much disruption. As a result, we believe it’s time for more companies to redesign their supply chains to be more resilient. Otherwise, they risk reverting to pre-pandemic practices that ultimately will be disrupted again by future challenges.

Here, we highlight seven best practices for ensuring resilient supply chains.

1. 01

   Make supply chains a board room priority

   If supply chain disruptions are a topic at the dinner table, the board room should be hyper focused on the issue.

   Resilient supply chains are often more costly, leading many corporate boards to resist the investment.

   In the past, board rooms generally only focused on supply chains when a specific problem arose. Companies where board rooms have always focused on supply chain resiliency as a market differentiator are positioned better for the current demand cycle.

   Unfortunately, more resilient supply chains are often more costly, leading many corporate boards to resist the investment. However, taking a long-term view – and better balancing resiliency, operating margins and asset inefficiencies – will provide a more resilient system with a better value proposition. If you look at supply chain issues as opportunities for improvement rather than costs, though, you can become more resilient overall.

2. 02

   Use enterprise resource planning

   Enterprise resource planning (ERP) software can automate demand planning. Adding ERP software as a supply chain management strategy is often a best practice for corporations that are experiencing rapid changes in demand for their products. Uncertainty modeling can be included within the ERP system across a range of supply chain planning functions. And you can use demand forecasting, inventory control and replenishment to calculate optimal inventory targets.

   The current supply chain issues are influenced by companies with strategic ERP systems. We believe that companies accurately predicted the 2021 demand from the COVID-19 re-opening and are adjusting global inventories to meet the demand. Unfortunately, the supply chain couldn’t keep up with the spike in demand. The supply chain is only capable of growth in the 3% to 5% range so when demand spikes over this range there is friction in the system.

3. 03

   Prioritize supply chain transparency

   If you have visibility across the supply chain, you can quickly adjust to supply and demand cycles. When the global supply chain is disrupted and the logistics stream backs up, you’ll be able to adjust more easily. Sales and operations planning is the core of any supply chain. Many companies have not invested in the technology to adjust sales cycles. Those that have made the investment in the technology were able to take advantage of the current inflation cycle.

   With demand forecasting comes production and inventory management. Companies that invested in visibility software were able to optimize production and inventory during the shock of COVID-19 and are now better managing the current inflation demand cycle. If you can visually identify supply chain issues within your systems, you can adjust the supply chains to minimize risks. You should also maintain a risk map of the supply chain for planning and operational usage.

4. 04

   Invest in supply chain architecture

   Companies that invested in building their own logistics networks were well positioned for COVID-19 and are in a much better position to manage current supply chain disruptions. If you’re not investing in your supply chain, you’re probably missing out on potential future opportunities, including building protection around your business.

   Companies that invested in their own supply chain systems are also now positioned to expand their businesses by offering logistics as a service.

   Take Amazon as an example. In 2014 the company started aggressively building its own logistics network. Its global transportation and warehousing system now includes owning 40,000 trucks and employing 400,000 drivers, and a fleet of 70 aircraft that operates from an air hub in Cincinnati.

   Many other companies that invested in their own supply chain systems are also now positioned to expand their businesses by offering logistics as a service. If you can avoid relying on third parties for logistics and increases in costs related to inflation, you can better manage future costs through capital investments in your own supply chain.

5. 05

   Build a resilient global footprint

   Successful companies use diverse sourcing, multi-sourcing and dual sourcing strategies to enhance supply chain resilience. Global companies that diversify their supply chain footprints are also better able to mitigate supply chain risks. For example, companies that only import cargo into the U.S. through the Southern California ports are vulnerable to a single point of system failure. Those that import cargo through the West Coast, East Coast and Gulf Coast have established U.S. port diversity.

   We also see highly successful companies near-shoring more of their activities as a risk mitigation effort. Multi-sourcing or dual sourcing of warehousing, ocean carriers, inland carriers and modes of carry are also successful strategies.

6. 06

   Shift away from just-in-time

   Keeping inventories to a minimum was an attractive cost saving strategy for almost a half century. However, COVID-19 has laid bare the problems associated with this just-in-time strategy. Major weather events and other supply chain disruptors have also revealed the downside of this approach. Over the last decade many successful companies identified risks associated with just-in-time strategies and questioned whether a different approach might be better.

   Some companies are now using insourcing.

   Companies using just-in-time strategies are less flexible to supply and demand fluctuation. But those that recognized that the supply chain was fragile before the pandemic had already started to adjust away from solely relying on just-in-time supply chains. In the past, major manufacturers could only last a few days of a supply disruption before having to shut down major plants. Companies need to re-examine their manufacturing strategies to ensure that supply chain issues do not shut down their production.

   As a result, some companies are now using insourcing. Being able to insource a variety of manufacturing processes helps you avoid the uncertainty of relying on third-party suppliers and the supply chain linking those suppliers to the manufacturing process.

7. 07

   Establish longer term alliances with logistics providers

   Reliance on spot transportation markets can offer cost savings during times of excess demand. However, companies that have established strong partnerships with logistics providers are much better able to navigate the current lack of available containers, trucks drivers and container slots on oceangoing vessels. Companies also need to proactively diversify logistics provider relationships to add flexibility to their networks.

   Recently a major U.S. retailer connected with a U.S. ship manager to lease several container vessels on a three-year term. We imagine this retailer has looked at its three-year demand curve and when planning the logistics wanted to have options over the next few years. Container spot rates may be much lower over the next few years, but this retailer is well positioned for potential shortages. Having control over the vessels also provides flexibility in which ports to use.

Conclusion

When looking at the current state of the global supply chains we have taken a glass half full view as opposed to a glass half empty. Despite the media headlines, the global supply chains as well as the companies using them have shown great resiliency in the face of COVID-19 and the reopening. Companies struggling would be wise to re-examine their supply chains.