September 21, 2023 | Supply Chain Strategy
Supply chain fragility has emerged as a significant concern in the last few years.
Disruptions, whether caused by natural disasters, geopolitical tensions, or unexpected events like the COVID-19 pandemic, can cripple even the most robust supply chains.
To address this challenge, businesses are rethinking their supply chain operations, adopting innovative strategies and leveraging technology to build resilience while simultaneously achieving efficiency and sustainability goals.
Here are five ways best-in-class organizations are creating antifragile supply chains.
The first step in tackling supply chain fragility is understanding that goals like cost efficiency, resilience, and sustainability are interconnected. Nearshoring, for instance, involves bringing production and inventory closer to the end markets, thereby reducing lead times and minimizing disruptions. This strategy not only enhances resilience but can also lead to long-term cost benefits.
Similarly, the concept of 'nearstoring,' which involves storing materials in proximity to the point of sale or end use, has gained traction. This approach not only aids in maintaining a more efficient supply chain but also contributes to declining warehouse vacancy rates.
Diversifying the supplier base is another crucial strategy. Many companies are setting up secondary suppliers in different regions, ensuring they can redirect production volumes when needed without significant disruption. Some are even building direct business relationships with sub-tier suppliers, creating opportunities for collaboration when the supply chain faces challenges.
Cutting-edge tools and capabilities offer enhanced visibility, supply planning, and compliance across sourcing spaces, empowering organizations to implement end-to-end processes. Machine learning (ML) plays a pivotal role by classifying suppliers, disruptions, and risks, and improving forecasting accuracy.
Tom Derry, CEO of the Institute for Supply Management, underscores the significance of machine learning (ML) in the near term in a briefing paper by Harvard Business Review Analytic Services and GEP. ML has the remarkable ability to learn from existing dictionaries and human-labeled data, making it invaluable for classifying suppliers, disruptions, and risks. Furthermore, ML can enhance the accuracy of forecasting by incorporating data from various sources, including weather patterns and macroeconomic changes.
Moreover, technology ensures compliance with stringent ESG (Environmental, Social, and Governance) regulations, where data accuracy and reliability are paramount, as mandated by the U.S. Securities and Exchange Commission and the European Union. Additionally, technology addresses workforce challenges and helps businesses compete effectively in a global market. Ultimately, technology-driven innovation is the cornerstone of resilient, efficient, and sustainable supply chains capable of withstanding modern challenges.
To achieve true resilience, businesses must embrace technology that provides real-time supply chain visibility and connects all stakeholders. Hewlett Packard Enterprise (HPE), for instance, has implemented a "one network visibility platform" that connects partners across multiple levels of its supply chain. This platform provides real-time visibility and facilitates digital collaboration among stakeholders.
Technology also plays a pivotal role in accurate forecasting, inventory optimization, and risk mitigation. HPE, for instance, uses an AI-powered advanced planning system with dynamic scenario capabilities to identify risks and proactively manage them.
Businesses should recognize that building efficiency, resilience, and sustainability are not conflicting goals but, in fact, are increasingly interconnected. These goals offer various benefits when aligned:
Cost Reduction: As supply chains become more agile and resilient, costs related to stockouts and last-minute shortages decrease significantly.
Environmental Benefits: Redesigning supply chains can lead to sustainability improvements, reducing a company's carbon footprint and contributing to its ESG goals.
Efficiency Gains: Innovations in supply chain design can enhance operational efficiency, driving cost savings.
For example, WestRock, a leading packaging company, redesigned its truck routes to connect mills, processing facilities, and recycling plants in a circular manner. This not only improved efficiency but also aligned with their ESG objectives.
In conclusion, tackling supply chain fragility requires a holistic approach that considers resilience, efficiency, and sustainability as convergent goals. By embracing innovative strategies and leveraging technology, businesses can build supply chains that are not only more robust but also cost-effective and environmentally responsible. The key to success lies in redesigning supply chains with the help of technology, innovation, and collaboration.
Read the HBR white paper to learn more ways of redesigning supply chains and meeting multiple goals.