The Age of Agility: Building Resilience in the Supply Chain
The Age of Agility: Building Resilience in the Supply Chain
Feature Article by Anthony Beavis, Managing Director APAC at Körber Supply Chain
Border controls, China’s zero-covid policy and global shipping costs and energy prices is putting increasing pressure on supply chains throughout the Asia Pacific region. Here, Anthony Beavis, Managing Director APAC at Körber Supply Chain discusses the critical need to strengthen supply chain resilience.
The recent business and economic disruption has shed a light on the fragility of many global supply chains. Major businesses have had to completely re-consider previous supply chain strategies that were largely centred around lean manufacturing, just-in-time delivery and reducing operating costs.
According to Geraint John, VP Analyst at Gartner, most supply chain leaders now recognise that becoming more resilient is necessary in the current environment.
“However, measures such as alternative factories, dual sourcing and more generous safety stocks go against the well-versed philosophy of lean supply chains that has prevailed in recent decades,” he says.
This shifting mindset is evident in many of the recent strategy shifts seen among some of the world’s largest companies. For example, Apple, now the world’s largest company by market capitalisation, has been heavily impacted by the ongoing lockdowns in China.
Earlier this year, Apple CEO Tim Cook warned that the company was not immune to supply chain challenges, and declared that supply chain challenges had hurt sales by between $4 billion and $8 billion.
As part of the launch of its hotly anticipated iPhone 14, it has ramped up its production output in India and Vietnam as an alternative to China, with Foxconn, the manufacturer of Apple’s iPhones, announcing plans for creating 10 to 12 facilities in India.
This is likely a move that will be followed by other major Western corporates and could be part of a significant shift away from a single source of manufacturing and a move towards more diversified sourcing strategies.
Furthermore, according to recent survey by McKinsey, almost 90 per cent of respondents said they expect to pursue some degree of regionalisation during the next three years. Ninety-three per cent of respondents also stated that they intended to make their supply chains far more flexible, agile and resilient.
Resilience in a state of disruption
Supply chain has arguably never been more important to the global economy than it is today, but it’s also never been more vulnerable.
In today’s globalised and interconnected world, any major disruption – from a disease to a fire – has the potential to cascade through supply chains and permeate other systems.
It’s not just the pandemic that has led to large-scale disruption in supply chain – natural disasters, accidents, international disruptions, geo-political tensions, and currency fluctuations continue to cause major disruption in supply chain operations worldwide.
While many organisations have focused on making supply chains more efficient by reducing operating costs, lean manufacturing, just-in-time methodologies and reduced product lifecycle and outsourcing – in light of today’s disruptive world, resilience has to be a major priority for any supply chain to not only thrive but survive.
However, even after the early impacts of the pandemic, many supply chains are still not equipped to manage, mitigate and respond to these disruptions in the future.
Six strategies for strengthening supply chain resilience
Supply chain leaders of today must balance cost and operational efficiency alongside greater supply chain resilience but rebalancing efficiency and resiliency in a disruptive world is challenging, and for many organisations increased resilience also comes with additional costs.
According to Gartner, supply chain leaders should pursue six major strategies to build greater resilience into the networks they manage. These are: inventory and capacity buffers; manufacturing network diversification; multi-sourcing; nearshoring; platform, product or plant harmonisation and ecosystem partnerships.
1. Inventory and Capacity Buffers
Increasing buffer capacity is a straightforward way to enhance resilience. Whether in the form of underutilised production facilities or inventory in excess of safety stock requirements.
2. Manufacturing Network Diversification
As seen with Apple, manufacturing network diversification is a key element of building resilience into the supply chain, and this is set to be a trend as more organisations increase agility and flexibility in their networks.
Supply chain leaders need to know their supplier networks in detail and be able to categorise suppliers not just by spend, but also by revenue impact if a disruptive event occurs.
While regional or local supply chains can be more expensive, they offer more control by moving the product closer to the end consumer.
5. Platform, Product or Plant Harmonisation
Harmonising technology to allow products to move seamlessly across networks and standardising components across multiple products will help to enhance supply chain resilience.
6. Ecosystem Partnerships
Collaboration with strategic raw material suppliers and external partners is vital to increase resilience in the supply chain.
How to mitigate disruption
Preparation is key to reducing the impact of disruptions, and organisations are becoming more aware of what needs to be done to mitigate risk and increase agility. For many, being future-ready means transforming their strategy, their technology, and their level of collaboration with the supply chain ecosystem.
There are several crucial components to driving resilience and business integration is absolutely essential. When all areas are connected and invested in one future-driven goal, it improves an organisation’s ability to meet customer expectations, while reacting to internal and external challenges.
Advanced technology to drive greater resilience
Technology also plays a huge role in building supply chain resilience. By reducing manual tasks, planning and sales servicing, technology helps businesses adapt faster and more effectively. It most notably helps them react more rapidly to changes in demand, overcoming industry labour shortages and training issues.
Many organisations in the APAC region are working with Körber to use advanced technology to drive efficiency and resilience. One example is voice-directed-work (VDW) – a highly flexible system that works by directing staff to the location of a product through a headset.
After the item is picked, the employee speaks into the mouthpiece to pass the necessary information back into the system. Since the user has their hands and eyes free, they can complete the task more productively and more accurately. VDW also reduces the training burden, since most of it is provided through the headset in real time.
A central aspect of any integrated warehouse operation is a warehouse management system (WMS), connecting all technology and processes within the warehouse. The WMS allows for more detailed planning to be undertaken, meaning that many last-mile issues can be measured and resolved. Often used to monitor and control resources and goods dispatch speeds, sort picking lists, and assign priority items to different shipments, this software is critical to ensuring an operation is flexible and agile and therefore resilient.
Another crucial software system is the transport management system (TMS). Linked to the WMS, the TMS coordinates transport with the rest of the operation.
With enough data from WMS and TMS – ideally including data from the wider supply chain as well as the internal operation – businesses can bring powerful analytics capabilities into play. Adding AI to the system allows businesses to analyse historical data and make predictions, improving agility and resilience. The same computer intelligence can also be used to optimise the sourcing and onboarding of new suppliers.
Collaboration and innovation through partnerships
Building resilience into the supply chain must also include an element of collaboration with the wider supply chain ecosystem. Breaking down barriers between different businesses is essential to establishing trust, transparency, and accountability. It also unlocks a wider pool of data and technology, to drive more efficient, agile, and robust business models.
As supply chain complexities increase, so do opportunities for disruption. In this challenging environment, only businesses with the capacity to scale and adapt will prosper.
Through the introduction of new processes, technology, and partnerships, business can build the resilient systems necessary to overcome any crisis. These will be the productive and profitable supply chain business models of the future.