For many businesses, the COVID pandemic shined a bright light on their greatest weaknesses. For some, it was a lack of digital maturity to meet the needs of a technologically advanced consumer base. But for others, it was a poor corporate culture unable to retain the support of a loyal workforce. And, for almost every company, the vulnerability that became most obvious during and after the worst pandemic months was a feeble and dysfunctional supply chain.
After so many supply chain disruptions over the past two years, almost all organizations are eager to make changes to improve resilience. However, not all strategies are actionable in the real-world environment. Here are a few realistic ways business leaders can boost supply chain resilience now for better business performance in the future.
Invest in Capacity Buffers for Greater Supply Chain Resilience
In response to the disruptions and delays that plagued the second half of the pandemic, many business leaders over-invested in buffer stock and excess inventory. But this is almost always a mistake. Instead of locking working capital into physical products which might not move off warehouse shelves, business leaders should work to increase the capacity of their supply chains.
This can involve investing in larger production facilities than are currently necessary. Or it could mean identifying and eliminating inefficiencies that are reducing output. Then, if and when demand spikes, organizations can immediately respond to their greater capacity. In the meantime, however, they will not suffer from lower cash flow.
Prior to the pandemic, almost every organization looked to China for manufacturing solutions. Yet the escalating trade war between the US and China as well as China’s severe response to COVID-19 all but eliminated any benefits American companies gained from working with Chinese partners toward the end of the pandemic. Thus, businesses that specialized in Chinese supply chain relationships suffered significantly. Meanwhile, businesses with more diverse networks thrived.
It might seem simple, but integrating diversity into the supply chain is a way of adding strength. Business leaders can use supplier management tools and other solutions to ensure that manufacturing diversity helps improve resilience without causing headaches.
Business leaders do not need to immediately begin relationships with multiple manufacturers and suppliers. But they should at least identify potential sources they might use in the event of supply chain disruptions.
However, disruptions are not always easy to predict. Even the most politically stable countries can suffer catastrophic natural disasters, as Japan did in 2011.
Therefore, all businesses in the post-pandemic world should make the identification of multiple supply chain sources a top priority. Moreover, leaders should keep their multi-sourcing lists updated through the years.
Localize the Supply Chain
Bringing supply chains closer to home is becoming more and more popular. Companies have come to recognize the risks of locating such crucial operations in companies with different cultural, political, and environmental structures. Business strategy becomes much more difficult when leaders must account for vastly different regulatory environments or track climate events around the world.
Localizing the supply chain to regions where a business sells their products or services, which is also called nearshoring, is a worthwhile strategy for organizations with more limited scope.
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Too often, businesses adapt their processes to individual vendors, manufacturers, suppliers, and sources. Unfortunately, variation in processes usually produces inefficiencies that can increase costs across the supply chain.
As much as possible, business leaders should strive to standardize their processes across the supply chain and across multiple products. Simplifying processes can be the first step of standardization. This should have the ultimate goal of creating harmony throughout the company’s processes.
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Collaborate with Business Partners
Many business leaders believe that they should have complete control over the members of their supply chain. They think when they say, “Jump!” their supply chain partners should ask, “How high?”
However, in truth, raw material suppliers, manufacturers, and other members of the supply chain might have valuable insight to contribute. Business leaders can only access this insight by thinking of their sources of supply as business partners.
Collaborations will help create resilience by unlocking new and useful information. Additionally, this could lead to relationships that will lower costs and provide better outcomes.
Some economists question whether the supply chain will ever return to the “normal” state business leaders knew before the pandemic. Thus, the more realistic business leaders can be in developing greater resilience in the post-pandemic world, the more successful their supply chains will be into the future.
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