In our globalized economy, companies are susceptible to major disruptions to their supply chain from any number of causes—such as policy changes or natural disasters. Most recently, the coronavirus forced production to halt in countries as far apart as China and Italy, and exposed vulnerabilities in medical supplies in New York, California, and beyond. The good news is that you can take active steps to prepare for and manage crises so that the impact on your value chain is minimized.
A company or contractor that adds value at each stage of your supply chain is a “pass-through,” starting with raw materials to new products to consumers. Understanding each pass-through allows you to anticipate the exact impact when a disruption strikes.
Not knowing your upstream suppliers is a critical—and all too common—mistake. The 2011 Sendai earthquake was a large-scale disruption that exposed countless companies who were not familiar with their upstream supplier, such as a French auto manufacturer that realized too late that the unavailability of a single part shut down its entire assembly line. The key lesson here is to develop relationships in advance with all your sources before the disruption occurs.
Do you rely on a single supplier with one localized facility? Does a key raw material come from a politically unstable country? Is your pass-through a company with a large share of the global market? Are your factories located in a disaster-prone zone?
Take stock of all your vulnerabilities and work to spread the risk. In 2005, Hurricane Rita caused shutdowns of oil refineries in Texas and Western Louisiana. Six months later, many consumer-goods companies realized that their petroleum-based packaging was in short supply due to Rita’s impact. Caught off-guard, the companies scrambled to redesign their packaging using paper and cardboard.
Reduce the risk of disruption by spreading it across two sources, ideally located far apart from one another. In 2018, many retailers struggled to source packaging after the U.S. and China started imposing tariffs on one another’s goods and engaging in a trade war. A number of retailers who had relied on Chinese suppliers were forced to find different sources overnight. For these clients, E2E Packaging succeeded in quickly delivering products from its diversified supply chain, including facilities in Turkey and India.
During the 2020 Coronavirus pandemic, like many nations, India closed its manufacturing businesses. For clients with pending orders in Indian factories, E2E again moved sourcing to alternatives in Southeast Asia including Vietnam.
This strategy requires that a company retains production facilities with local sources in each of its major markets. It is similar to the second-source strategy in that it incurs higher administrative, quality assurance, and per-unit costs. The upside is that the disruption risk is lower—and as a bonus, transportation costs are also reduced.
By their very nature, disruptions can draw out reactions based on instinct and emotions. But during crises, you should learn even more on correct data sets and forecasting tools for making decisions.
Your workforce is a crucial value-adding part of your supply chain. In a crisis, how can you respond with a human-resources plan that reduces negative impact to your supply chain while upholding the long-term sustainability of your workforce? Consider ideas that keep your workforce both stable and flexible, such as remote-work arrangements and freelance contractors.
Our extremely connected and rapidly changing world brings us countless benefits. But globalization also means that an unforeseen event on the other side of the planet can shut down major industries in a relatively short amount of time.
Nevertheless, disruption risks can be managed by proactive planning and collaborating with resourceful supply-chain partners. It’s not just building a strong supply chain that will safeguard your company in the 2020s and beyond—it’s building a resilient supply chain.