Q&A: Supply chain resiliency in action

Ben Dollar: I define supply chain resiliency as being able to respond rapidly to supply disruptions and mitigate their impact if and when they happen. This may mean contingency planning, forecasting, or any other preventive actions for mitigation. The most important thing to keep in mind is that supply chain resiliency will drive overall business resiliency.

Regarding what drives supply chain resiliency, it’s a combination of things. As we learned in the response to the COVID-19 pandemic, agility, versatility, and flexibility are critical, as well as knowing how and what to diversify and building capacity and buffers the right way. You need to find the right combinations of partners and suppliers. Doing all of this well requires access to and the ability to analyze information from external markets as well as your own specific value chains. Being able to take data and turn it into insights is key.

Animesh Arora: I define supply chain resiliency as balancing resilience, agility, and efficiency—and shifting from issue management to risk management for your supply chains. First, there’s resilience, which is the resistance to supply chain disruptions. How well does an organization really resist disruptions such as pandemics, earthquakes, or geopolitical crises? Do they have capacity buffers, supplier ecosystem visibility, and a broad enough view of their physical and information flows across the network to ensure production can continue through a crisis? Will they be able to weather the crisis better than their competition?

Next there’s agility, which is how fast you can recover from the disruption. Can you bounce back faster and better than the competition? While coming back, can you also gain market share? As disruptive events occur, there are typically opportunities for resilient and agile companies to bounce back and gain market share in the process.

Finally, there’s efficiency, which helps us optimize the execution of resources and assets across the value chain while being resilient and agile amid disruption.

Ben Dollar: The why is fairly evident: Given the degree and frequency of disruptions we’re seeing, the ability to anticipate issues before they turn into major problems is a true competitive advantage. Today, there’s so much data to help identify issues in advance, computing power, and then there’s Generative Artificial Intelligence. We have an entire set of tools—but the challenge is using those tools effectively.

As far as the how, you need to understand how your businesses or business units work together. To achieve this, the right things need to be in place: the right organization, the right operating model, the right processes, and the right technologies. Another big shift is the right culture. Supply chain organizations have historically been rewarded for fighting fires … but now, they’re instead being rewarded for preventing them. It’s a different way of thinking.

Animesh Arora: At a fundamental level, the way most organizations make money—at least manufacturing organizations—is by manufacturing parts or products and getting them to market as fast as possible. Reducing the order fulfillment cycle time efficiently leads to more revenue and profits. In this way, the why becomes obvious. Look at the macro shifts that’ve happened in recent years. Most manufacturing companies today have migrated from a vertically integrated local or regional supply chain model to a highly distributed, complex, global supply chain—one of “source anywhere, make anywhere, and sell anywhere.” This instance of “anywhere” sourcing, manufacturing, and selling has introduced an entire host of new risks in transportation, packaging, quality, subassemblies, regulations, labor, and inventory.

Further, the geopolitical and cyber risks the world is seeing didn’t exist 15 or 20 years ago. You can see how supply chains are becoming extremely complex and difficult to manage, with lots of touch points and hand-offs. The need to shift from issue management to proactive risk management is becoming necessary for supply chains today.

Interestingly, supply chain disruptions in the last few years have started to show, year after year, the benefits of proactive risk management. What used to be a tough sell (from an accounting standpoint) of cost avoidance and risk and probability is becoming more and more palatable. With the frequency of large supply chain disruptions and the increasing cost of managing them, it’s easier to justify investing in risk management.

Ben Dollar: With risk sensing, one of the most important factors is the depth of knowledge and information you have on your complete network of suppliers, partners, and customers. This goes beyond just understanding your tier one and two suppliers; it’s an understanding of the suppliers that are supplying your suppliers—in addition to the partners they may work with and the customers you’re delivering to. Being able to see and understand your entire network versus just your immediate supply chain is the key to risk sensing.

When we consider mitigation, agility and flexibility are extremely important. When an event occurs, the ability to coordinate across functions to understand the impacts in an entire enterprise and address them is critical. In today’s increasingly global environment, being able to coordinate responses to mitigate challenges globally (versus just at your own site or geographic level) is crucial.

Animesh Arora: First, access to information in your multitier supply chain is critical. If you don’t understand every touch point right down to your end-tier supplier of raw material, how that gets processed, and how that material moves across the value chain until it gets to you—your visibility and access to data isn’t there, and your sensing mitigation is limited.

The second important element is the right platform or set of digital automated tools to intelligently process this information and provide relevant, timely, and actionable insights. The data may be across thousands of suppliers, and in some cases, a million nodes may need to be sensed, managed, and analyzed. It’s impossible to do this manually with spreadsheets and be cost effective, so a digital tool or set of tools is critical.

Lastly, what’s important is a simple, clear governing structure and organization inside your supply chain or procurement business functions to focus on taking action on these insights—proactively managing risk and making the necessary moves. Whether it’s adding buffers, shifting suppliers, creating partnerships, or adjusting your manufacturing plans, teams need to continuously determine whether to act, when to act, and how much to invest in managing risks versus managing issues.

Ben Dollar: Start with a truly shared vision across the enterprise so that the objectives and mission are understood. Supply chain resilience isn’t just a procurement or a supply chain issue; it’s a business issue. Once you’ve established that foundational vision, it will enable collaboration and communication. And then the organization can dive more specifically into the actions needed to control an accurate set of data—knowing how to analyze and understand it quickly. Being able to quickly turn data into insights and insights into action is essential. Getting the data into a place where it can be easily managed, having the right tools to analyze it, and having the right people with the right skills will be key.

Animesh Arora: Unlike many traditional technology-enabled transformations, this one is actually technology led. It’s not about changing an existing process and then using a tool or technology to enable that process, which is the standard way of digitization and optimization. First, the organization will need to accept that this is a different kind of shift, embrace the technology that comes with it, and know how to manage it.

Secondly, this is not only a big change but a long change for large complex organizations—it’ll take time. Organizations will need to be patient and understand that the return on investment might not be something they see on day one. A major disruption may happen only once every two or three years, and that’s when the investment will pay for itself multiple times over.

Ben Dollar: Getting a large group of people who’ve operated using a traditional set of processes and systems for a long time to not only use a new set of tools but to trust the outputs of those tools is not easy. In order to not drown in the data, they now also need to be able to take the technology and data and use them to generate actionable insights. Additionally, there’s a tendency to analyze information to death, trying to achieve 100% certainty versus rapidly acting on risk signals. In a world of proactive supply chain management, you’re going to identify risks that that may turn out be nothing, so you’ve got to be able to act quickly instead of proving 100% that something is a risk. It’s a different way of thinking for a lot of our large manufacturers.

Animesh Arora: Getting companies to invest money and effort into mitigating or avoiding crises in advance is a challenge. Most companies have traditionally been hesitant to invest money where the return is cost avoidance—it’s much easier to get money to address a crisis that’s happening now. Take the COVID-19 pandemic for example: When supply chains shut down, companies put a lot of money into figuring out new suppliers or ways to keep their supply chains moving. But that was when crisis was already happening. How many companies had a preventive plan in place?

Finally, another big factor is building additional capacity. Often, risk mitigation involves creating buffers and extra capacity both internally and externally. Getting that capacity approved and identifying where to build it, how to manage it, and how to integrate it into the supply chain with agility and flexibility is the other challenge we’re seeing.