Building supply chain resilience is a priority for businesses today. Disruptions are more common than ever, consumer preferences are shifting, and the economic and regulatory landscape is changing. In response, the evolution of supply chains, globally, has accelerated with resilience as a central theme. As part of this rethinking of supply chains, there is one important consideration that can take a business’ supply chain resilience to the next level and should not be overlooked: actionability.
From COVID-related production issues, raw material shortages to port congestion, geopolitical challenges and weather events – very few businesses have escaped supply chain disruptions in recent years. In fact, Euromonitor’s latest research on supply chain optimisation found that over half of businesses (51%) experienced disruption in 2022. Disruptions have become so commonplace that the concept of VUCA (volatility, uncertainty, complexity and ambiguity) is now familiar to most businesses. It is used to refer to the many challenges that can upset a supply chain, backing up the need to build greater resilience.
Supply chain resilience is the ability to prepare, respond and recover from disruptions while minimising the impact on business. In building supply chain resilience strategies, actionability is what ensures business can act quickly and effectively in the face of disruptive events. There are several key elements that contribute to improved supply chain resilience and each of them supports and benefits from actionability, as outlined below.
How to achieve supply chain resilience
McKinsey calculated that supply chain disruptions cost the average business 45% of a year’s profits over the course of a decade. A 2023 SAP survey found 52% of global businesses believe their supply chain needed a lot of improvement to be equipped to respond to supply chain issues. At the same time, Euromonitor found that over half of businesses (56%) plan to invest in supply chain resilience in the next five years.
Building supply chain resilience, which minimises the impact of disruptions on a business, requires some key elements. Here are the foundations of a resilient supply chain and how they facilitate and benefit from actionability.
- Visibility –. For a supply chain to be truly resilient, visibility of all stages of the supply chain matters. An Economic Impact report found 67% of businesses considered enhancing supply chain visibility a high priority. The same number wanted to prioritise supply forecasting and planning. Both can be achieved through digitalisation and investing in the right technology to deliver accurate, real-time data across their supply chain, on demand. Actionability can equip a business to use this data and visibility to its full potential. It allows a business to identify, and even anticipate, disruptions to their cargo or to specific parts of their supply chain, and then to make better, faster decisions around production, transportation, and distribution in response. For the time being, businesses have focussed on Tier 1 visibility of their supply chains. In other words, their direct suppliers. In the years to come, true visibility will stretch to include Tier 2 (suppliers’ suppliers and subcontractors) and Tier 3 (Tier 2 suppliers’ suppliers and subcontractors), opening up a whole new world of possibilities.
- Diversification – more diversification is necessary to build the resilience of just-in-time supply chains. The IMF’s latest World Economic Outlook showed that greater bolstering of shocks to supply chains could be achieved by diversifying inputs across countries, making these inputs more substitutable. Meanwhile, a 2022 EY survey found 54% of companies were looking to add suppliers. Actionability allows for diversification to be used to its full potential, ensuring inputs can be swapped out for inputs from another source when needed.
- Flexibility and agility – these are essential to adjust and adapt supply chain processes in response to changing conditions. When balanced correctly to ensure transitions and responses are smooth, these go hand in hand with actionability to ensure maximum mobility. Combined, they ensure that the ability to change inputs, switch transportation modes or routes, and fully optimise a supply chain’s resilience so it can smoothly and seamlessly respond to disruptions and minimise their impact. There are several ways to maximise flexibility and agility, including choosing a logistics partner that can guarantee access to a wide range of transport modes and services. This ensures alternatives are always available and can be accessed quickly and easily.
- Collaboration – collaboration across the supply chain is crucial to improving supply chain resilience and supports actionability. To get the full benefits of actionability, a business needs to cultivate and secure the support of its suppliers and partners. This will allow it to secure quality information and put it to use. A strong connection and shared commitment to resilience and actionability facilitates better decision making and an enhanced ability to overcome obstacles and respond to disruption.
Maximising supply chain resilience can be helped by investing in the areas above and ensuring actionability is considered and prioritised.
The intersection of resilience and actionability for the automotive industry
Among the industries focussed on building supply chain resilience is automotive. Traditionally, the automotive industry runs lean. It was the first adopter of the just-in-time model back in the 1950s, and – until the pandemic – was its main champion. Businesses operating with a just-in-time supply chain arrange to receive goods from suppliers only when they are needed. The goal is to have only the materials they need on hand – no more, no less. This has several benefits, including:
- Streamlined processes
- Requiring less time and fewer resources
- Reduced operational costs
- Reduced storage costs
- Minimised waste
Just-in-time supply chains rely on the availability of raw materials and timeliness. And, with no excess stock to rely on, disruptions can hit hard. The semi-conductor, or computer chip, shortage for example, was estimated to cost the global automotive industry USD 110 billion in lost revenue, according to the AlixPartners consultancy. In response, some automotive businesses temporarily moved away from the key principles of just-in-time. The Foundation for Future Supply Chain reported that some auto manufacturers stockpiled key parts and materials, started using multiple sources and even built their own facilities to produce raw materials and components.
However, automotive supply chains are long and complex, and stockpiling the right components and materials is challenging and expensive. Improving resilience can help automotive businesses move back closer to a just in time supply chain. Visibility, diversification, flexibility, agility and collaboration – combined with strong actionability – can help bolster automotive supply chains, ensuring the right components are in the right place when they are needed and that contingency plans can be quickly actioned in case of disruption.
Prioritising supply chain actions for resilience
The evolution of global trade will continue in the years to come, as will the unpredictability of VUCA, pushing the ongoing need for businesses to bolster their supply chain resilience strategies. Once the foundations of a good supply chain are in place and actionability has been prioritised, a business equips itself with better control, better speculation and better planning. They are better placed to survive and thrive – whatever the circumstances.