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With the onset of fall here in the Northern hemisphere, signs of nature preparing are everywhere. Take the squirrel, for example. In anticipation of inclement weather and unpredictable food sources, the squirrel buries its nuts in countless spots in and around its territory. It takes care to revisit each of these spots continuously throughout the day. It industriously creates new burials and relocates a stash if it is deemed at risk. Risks can include the stability of the location (e.g., a moveable flower pot vs. a hole in the ground), unforeseen inclement weather (freezing, flooding, high winds, fires), other inquisitive animals, and more. The squirrel also spends a substantial amount of time searching around its territory and the surrounding periphery for new food and nesting supplies; it may return to certain sources if they prove plentifully fruitful.

While it is a simple metaphor, the story of the industrious squirrel anticipating and responding to external threats is much like what many companies experienced throughout the pandemic, highlighting a real need to plan for vulnerabilities and shore up against future disruptions. Triggering events like a supply shock in China, a global economy shutdown, trade restrictions, and political and competitive pressures, all contributed to throwing globalization into chaos writes Willy C. Shih in “Global Supply Chains in Post-Pandemic World.” The pressures have led countries, like the U.S., to increase domestic production, grow employment, and reduce or eliminate dependence on risky sources.

These destabilizing events highlight the need for resiliency without weakening competitiveness, with a focus on strengthening the supply chain’s processes and sources.

Shih outlines three steps to meet the challenge of resiliency:

  1. Uncover and address the hidden risks. Modern business practices provide manufacturers with the opportunity to use suppliers, subcontractors, and specialists for components of a product. This helps the manufacturer incorporate the latest technology and operate as lean as possible. However, as we have found, this creates a vulnerability in the event of an external threat because depending on a supplier in the network for a critical component or material can be detrimental if the supplier is shuttered or disrupted themselves.

    To extrapolate potential risks, you first need to identify vulnerabilities and understand where the risks lie by going beyond the first and second tiers of the supply chain (i.e., a mapping process to categorize suppliers as low-, medium-, or high-risk). Once risks are identified in the supply chain, the information can be used to address the risk through diversifying sources or stockpiling key materials or items.

    Next, diversify your supply base. Address dependence on sources by bringing on additional sources that are not vulnerable to the same risks. As illustrated through the supply-chain disruption earlier this year, it will take significant time financial resources to build a new supplier infrastructure in a different country or region.

    Finally, consider holding intermediate inventory or safety stock. If alternate suppliers are unavailable, determine how much extra stock to hold and where it is along the value chain. The cost of holding safety stock needs to be weighed against the costliness of disruption (especially in the form of lost revenues, higher prices, and time and effort for management).

  2. Take advantage of process innovations. There is an opportunity to tackle process improvements when transplanting a production line or setting up a new one. Oftentimes companies with existing production lines choose to retain existing production lines rather than invest in new, more competitive lines and equipment. The benefit of embracing new process innovations include advantages, such as lower costs or switching amount products, which eliminates obsolete installed bases of incumbent suppliers. Automation, new processing technologies, continuous-flow manufacturing, and additive manufacturing all offer opportunities to make factories more sustainable.

  3. Revisit the trade-off between product variety and capacity flexibility. When demand surged early on in the pandemic, we witnessed first-hand the supplier deficits in certain categories (e.g., toilet paper), as manufacturers struggled to shift from one market segment to another or from making one kind of product to another. In addition to considering capacity flexibility, companies should also consider the trade-off of producing numerous product variations.

The key take-aways for building resiliency are centered on supply chain fortification and improvements. By uncovering and addressing hidden risks, taking advantage of process innovations, and revisiting and revising product variety and capacity flexibility, the threat of potential external disruptions will lessen, competitive positions will be strengthened, and supply chains will be able to ride the wave of chaos rather than succumbing to it. Link to Article