After the COVID-19 crisis, companies realized that they cannot do things the same way as before. Since then, companies came to recognize how important it is to have a resilient supply chain. Since crises like these will likely happen again, companies will have to plan strategies that can keep their supply chains operating reliably when they occur. Since companies will not be able to control when these events occur, they will need to devise plans to minimize the direct and indirect impacts of these events on their operations. Preparing well made plans can create some assurance regarding how a supply chain can respond to such events. These plans do not have to involve elaborate methodologies, but can employ simpler tactics such as adjusting inventory and lead time, and identifying and reserving robust and reliable sources of materials, transportation and production capacity.
Value Over Price
As companies consider moving their operations back to the U.S., they will still need to diversify their production resources and material suppliers in some way. Some companies will opt to keep all production in-house, but this can pose some risk if a company loses some of their own production capabilities during a crisis. Hence, extra suppliers of production and materials should be selected and retained using criteria other than solely the list price, which is most often utilized. It begins with finding those suppliers who can be reliable sources for materials and production. In addition to price, factors to be considered would include, among others, supplier quality, response, coordination and logistics, required control and visibility, compliance, reputation, intellectual property protection, and business contracts and agreements.
It’s All About Risk
Since suppliers should be viewed as business partners and not adversaries, contractual terms should seek to have all parties sharing risks in some way. Since risk arises from uncertainty, anything that a company can do to eliminate uncertainty in their supply chain can reduce risk. Reserving additional reliable sources of production and materials can further reduce uncertainty. This starts with realizing how a supply chain network is driven by the way the very products it supports are designed and produced. Products should be designed, or at least examined, for those portions that require responsive and dependable sources. This can then form the basis for creating the criteria for choosing the right production and material suppliers, and create further certainty that the product can be produced in a reliable fashion, even during a crisis.
Resilience by Design
In the post COVID era, firms realized that resilience must be built into the design of a product’s supply chain network. It involves using some of the aforementioned approaches, that are based on fundamental principles which did not radically change after the crisis. They include:
• Preparing response plans to minimize the impacts of adverse events on production and sourcing;
• Proactively diversifying material suppliers and production resources, including those that are in-house;
• Pre-emptively reducing risk by eliminating uncertainty in critical points throughout the supply chain, including choosing reliable and responsive suppliers and production contractors.
Hence, utilizing some simple basic approaches can ultimately shape a fulfillment network that can withstand the effects of a variety of crisis.
Matthew Liotine, Ph.D.
Vice President, BLR Research
Professor, University of Illinois at Chicago
https://www.linkedin.com/in/mliotine/