Ensuring your Supply Chain Risk Resilience
Supply chain risks have been in existence for a very long time; these hardly need an introduction. “Supply chain leaders have to perform and deliver regardless of economic conditions or the environment,” stated Dr David Gonsalvez, CEO & Rector of the Malaysia Institute for Supply Chain Innovation (MISI). “You cannot say that something has happened, and as a result, the supply chain doesn’t work. In these pandemic times, all industries have been affected, to different extents. We just have to figure out how to get things going.”
In his presentation “Is your Supply Chain Risk Blind – or Risk Resilient?” he said that resilience was the capacity to recover quickly from such difficulties. All industries have felt the effect of the pandemic. Sourcing and logistics have been affected. The electronics industry, for instance, has been forced to raise prices; delivery delays have resulted in PPE not reaching those who need it; and the retail industry has lost significant revenue. Profit margins have narrowed for the energy and industrial sectors, and the telecommunications industry is struggling with quality issues brought on by the spike in demand from people working from home.
Despite these difficulties, however, some companies have been able to grasp opportunities. Citing the example of Walmart as one company that has been doing well, he said that it had a Quick Supply Replenishment Process (QSRP) in place that enabled it to keep going using technology, enabling e-commerce and online transactions. It had already been moving into e-commerce before the pandemic, to challenge its competitors, and acquired technology which allowed it to accelerate. It set up facilities like drive-through pickups for customers and pop-up fulfilment centres that made it easier for them to buy groceries in the midst of the pandemic.
“As a result, they performed well, and were even able to raise wages and pay bonuses,” he said.
But it’s not just big organisations that have done well. Another company, small producer J W Lopes, usually distributed to restaurants and small grocery stores but lockdowns meant its customers couldn’t operate their businesses. It redeployed its logistics assets; created standardised products; and used social media and e-mail to spur business during the most difficult time. This quick pivot helped it to manage the business, and allowed it to maintain or redeploy its staff and carry on even during the worst of the pandemic.
Dr Gonsalvez pointed out that the supply chain generally functioned despite the pandemic; in many cases delays and shortages were caused by other factors, not supply chain failure. What it needs is more resilience. Supply chains today have to do more, and the demand is not going to decrease any time soon. This points to a need for, and the growing importance of, technology and the application of the right tools to ensure that processes and people are able to build the required levels of resilience and sustainability, while managing costs.
In order to do this, organisations have to look at the big picture – the entire supply chain – and consider increasing safety stocks; practise dual sourcing and localisation; and develop their own agility and the ability to pivot quickly in times of crisis. Outlining some requirements when building supply chain resiliency, he said organisations needed end to end visibility, among other things. They need to see where supplies are coming from. They also need relevant technology, but they first have to understand what the business needs, and only then acquire the technology accordingly. Planning, not just forecasting, is necessary. What possible scenarios could happen? How should these be handled?
Organisations should realise that while major risks will always be present, these could also be viewed as opportunities – so it is important for the firm to recognise and understand how demand may be impacted by events. The changing economic scenarios in other countries may also have an impact on an organisation’s risks; sometimes as extensive as what happens locally. This makes it crucial that risk analysis and business continuity planning is conducted.
“When addressing the different scenarios that may arise, organisations should include things that are relevant to their own as well as their suppliers’ businesses,” advised Dr Gonsalvez.
The pandemic has shown that advanced procurement may be an inevitability in the future. Businesses must consider alternatives to their regular suppliers, and beyond. They may even have to look for different products, and new suppliers – perhaps even to the extent of acquiring suppliers, or having suppliers provide the necessary technology to ensure that operations can continue. Another area which businesses need to keep an eye on is decision-making clock speed, i.e., the speed at which decisions are made. The environment today demands fast decision-making but this carries with it a different type of risk. A fast decision made at a critical time may turn out to be the wrong one.
There must be room therefore to allow backtracking and reversals of decisions that, with hindsight, could be detrimental to the firm. Where possible, decision-making could also be passed to other levels to hasten activities and increase efficiency. With so much at stake, due consideration needs to be given to the human resources or talent that the business will require, to bring all these factors together and manage them effectively. Organisations have to identify the required personnel who have the requisite skills and talent to operate in a pandemic. These talents will need to make decisions, and be ready to step up in a crisis.
They will have to demonstrate commitment and be able to weather eventualities. “It’s about people,” Dr Gonsalvez concluded. “They need to be trained to understand and work cross-functionally, to identify the risks and opportunities, and be authorised to make decisions for quicker response.” Not all these factors will be immediately implementable, he said, but organisations should start the process of building resilience because they will need it not just now, but for the future.