Improving supply chain resilience
Can you afford not to?
Never before has supply chain risk been so to the fore of the organisational mind set. Anecdotal stories combined with frightening evidence demonstrate clearly the stark reality that is a break down in the quality, reliability and traceability of raw materials. Not being able to reliably trace the source of ingredients in a food & beverage manufacturing facility or of active product ingredients in a pharmaceutical plant can be detrimental to the reputation and brand of the relevant organisation.
Many events covered in recent headline news stories affect global supply chains and few organisations have avoided negative business outcomes once supply chain issues have hit the headlines. The horse meat scandal is one such event where supply chain contamination has led to wide scale repercussions across a range of industry partners in the food sector. Investigations by the Food Safety Authority of Ireland resulted in Ireland being the first EU state to report the presence of horse meat in beef and make public the results. This has resulted in a decrease of frozen beef burger sales across the Irish and UK markets resulting from a lack of consumer confidence and trust in the industry. Examples such as this illustrate the importance of supply chain management and strong traceability systems which are part of a resilient supply chain which can react to changing external and internal pressures.
So why is there risk in the supply chain?
Recent sourcing and procurement practices and emerging external forces have increased the risk exposure of national and international supply chains. In addition, internal practices, focused on efficiencies and reducing costs, have increased and shifted risk exposure:
- Lack of Coordinated Sourcing Practices
- Rise of just-in-time and lean practices
- Increased outsourcing, multi-tier supply chains
- Supplier consolidation strategies
- Centralization for economies of scale
- Pressure to reduce costs and maintain/increase margins
- Geography – sourcing of ingredients in geographically dispersed regions
Customer, macroeconomic, and societal trends have also increased pressure on supply chain operations and is driving greater awareness by the consumer of the importance of supply chain management and wider sustainability issues:
- Social media & the consumer demand for increasing transparency
- Environmental & social responsibility agenda
- Heightened regulatory enforcement
- Shifting economic landscape
However, many organizations do not have the necessary governance, people, process, and technology enablers to facilitate holistic supply chain risk management.
So what to do?
The Deloitte point of view on managing supply chain risk is that organisations have to build what we term “resilient” supply chain. This point of view is based on our experience working across the food & beverage, pharmaceutical and medical device organisations. A resilient supply chain, devoid of critical vulnerabilities, is able to withstand many dynamic and simultaneous risks.
How to build a resilient supply chain?
A resilient supply chain balances risk and costs to prevent or recover quickly from a multitude of dynamic and simultaneous risk-related disruptions. Resilient supply chains are characterized by four pillars.
The ability to track and monitor supply chain events and patterns, enabling proactive actions:
- Monitoring of supplier performance and compliance
- Ability to monitor flow of material from tier three suppliers to end-users
- Line of sight into end-user consumption and usage patterns
The ability to quickly adapt to disruptions without significantly increasing operational costs:
- Identification of alternate suppliers that can manufacture core products in the event of a disruption
- Ability of a single manufacturing line to produce multiple products
- Ability to re-route materials to meet changing demands
The ability to develop symbiotic and trust-based relationships with supply chain partners and other key strategic networks:
- Collaborative planning with suppliers and customers
- Collaborative design in products – incorporating customer demands and supplier capabilities
- Access to end-to-end supply chain inventory data and supplier capacity constraints
The ability to implement policies and execute processes to prevent disruptions:
- Ability to develop products with appropriate levels of quality and safety
- Ability to protect end-to-end product flow (e.g. tampering, theft, counterfeiting)
- Adequate regulatory, legal and social compliance policies and controls
For an organisation to have a robust and resilient supply chain, the above four elements must be present. This can be difficult to achieve but it is possible from small to medium food and beverage producers to large pharmaceutical multi-nationals. The key is to successfully select a portfolio of resilience strategies that effectively and efficiently reduce specific vulnerabilities in the relevant supply chain.
In building and maintaining resilience, organisations must also develop and implement effective governance structures and key enablers. A key principle for effective governance is selecting an individual or a defined group of individuals as the accountable owner for supply chain resilience and risk issues.
Examples of enablers of good governance include:
- Processes - policies and level of control and monitoring
- People - culture, roles and responsibilities and awareness
- IT - risk databases and analytics, modelling and simulation and reporting dashboards
The 5 step approach
Deloitte has defined a five-step approach to help build and continuously improve supply chain resilience to protect organisation reputation and value:
Deloitte have worked in the supply chain space for many years with a range of experience across multiple sectors. We have established methodologies, tools, and accelerators for supporting organisations in the development of resilient and robust supply chains and traceability systems. We also have a dedicated Food Safety Supply Chain Risk practice which has a presence in 11 countries, including the U.S., and globally through the Deloitte Touche Tohmatsu Limited (DTTL) network of member firms.