Covid, Brexit and the war in Ukraine have all sent supply chain shocks around the globe, forcing firms to rethink their business-as-usual supply chain management strategies, and concentrate instead on building supply chain resilience.
But what exactly is supply chain resilience, and how do you build it into an organisation?
We answer these questions in detail, and offer 14 strategies recommended by experts for building supply chain resilience and weathering upcoming risks and shocks.
What is supply chain resilience?
Supply chain resilience for a business is the ability to withstand change and still get product into the hands of customers, despite shocks or disruptions.
As Sam Gilks, Senior Supply Chain Manager at Young Foodies, puts it: “If you can’t put your product on a shelf – which is what a supply chain does – do you even have a product?”
An example of supply chain resilience
A basic example of supply chain resilience is building in redundancy through dual sourcing: having an alternative supplier for important parts or ingredients.
Mara Seaweed, for instance, is a Scottish company that makes nutritional seaweed products. Their Head of Supply Chain, Daniel Bull-Clearie, initially sourced their raw product entirely from their own coastal farm. However the risk of disruption in their supply – from something as simple as bad weather or local labour shortages – meant it made sense to build in redundancy by setting up additional channels.
The company is now able to purchase from multiple local Scottish sources, as well as import from overseas if required, which has made their supply chain more resilient – and made their business more stable.
Other recent changes the company has made include early ordering for key ingredients to circumvent disruptions in the global transport system. As Bull-Clearie puts it: “Delivery times are flexible and growing, and it’s easy to be caught short. Over the next six to eight months it’s going to be look as far ahead as possible and order as early as possible across everything.”
What are the benefits of supply chain resilience?
The benefits of supply chain resilience are immense. Risk management is central to all manufacturing production strategies. Manufacturing is by nature high risk, and ensuring there are strategies in place to offset those risks is essential to running a successful operation.
The major benefit of supply chain resilience is that it creates a lower risk environment. A report from by Bain & Company found that those who prioritised and invested in supply change were able to deliver improvements of up to 25% in output, and even more – up to 30% – in customer satisfaction.
A focus on this key pillar of the business also leads to a rise in productivity. McKinsey’s analysis shows that more than 90% of business leaders were committed to making supply chain resilience a priority for investment in the near future. The research shows they plan to do this several ways, including by sourcing raw materials from more than one supplier and bringing certain elements of their supply chain closer to home.
How is supply chain resilience measured?
Supply chain resilience is clearly a goal that businesses should aim for, but assessing the impact of measures taken can be a complex process. The idea of ‘stress testing’ organisational and financial constructs has become more commonplace in business, particularly in the wake of the financial crisis, and it is an idea that can be translated to supply chain resilience.
For example, supply chain resilience can be measured by building a digital twin of your operations and the running scenarios that disrupt various steps. This enables the impact of those disruptions to be quantified, both financially and in terms of less tangible losses to the business (such as goodwill).
Such analysis can be expanded upon by creating a certain ‘level’ at which the business passes or doesn’t pass when tested against disruption or any other unexpected episode. From there, a deeper dive into the business capability can be assessed by considering how long it would take to recover from a disruption, how much it would cost, and what the flow-on effect would be.
Analysis of this sort also creates the ability to identify weak points in the business’ supply chain, put in place mitigating practices, and assess the impact should failure occur.
Why is supply chain resilience in the news?
Supply chain resilience has been in the news frequently of late due to Brexit, Covid, Russia’s invasion of Ukraine, and other global shocks. More than any other time in recent history, global links and connections have been strained and – in numerous cases – broken by the massive disruption to the normal flow of events.
In recent years, the explosion in global supply chains that demand interconnected organisations around the globe has delivered a rapid uptick in business efficiencies, cost reductions and products suited to more and more specific customer demands. According to McKinsey, the value of such goods which have traded globally has tripled since 2000, and now sits at more than $10 trillion.
However, the vastness and complexity of these global networks has created increased risk. Recent events have caused chaos in global supply chains – and made achieving a reliable and resilient supply chain more difficult.
Covid-19 and supply chain resilience
The pandemic caused an immense international shock as countries closed their borders and implemented lockdown. Supply chain issues initially arose in China, an important source of labour and materials, and ground zero for the virus. However, they soon swept the world, with Covid-related illnesses and death rates rising at a frightening speed.
However, while the ensuing chaos seemed largely unpredictable given the rarity of such a pandemic, Ernst & Young argues that Covid largely accelerated and magnified problems that already existed in the supply chain. Much of this related to shipping and trucking delays, along with the breakdown of steps in the manufacturing of products due to borders being closed.
The report, which was based on a survey of 200 senior-level supply chain executives, noted that only 2% of respondents said they were prepared for a pandemic. As a result, more than 70% said it had a negative effect, with 17% of those saying it was significantly negative. Nearly 60% reported serious disruptions.
In response to the pandemic, the report says, manufacturers have been forced to rethink priorities, with a focus now on reskilling supply chain workers, making existing supply chains more effective, and diversifying traditional linear structures into ones with more touchpoints – and therefore more options if one cog gets jammed.
Brexit and supply chain resilience
While the pandemic is perhaps the most significant event to affect supply chains, it has been sandwiched between Brexit and Russia’s invasion of Ukraine, both of which have created further supply chain issues.
In the case of Brexit, the UK’s exit from Europe prompted around 1.5 million EU nationals to leave, which had an effect on the availability of workers for a range of industries. Brexit has also made it more difficult for UK companies to recruit from Europe. As a result, there has been a massive shortage in staff, with the most notable squeeze in the trucking industry. This shortage of truckers has led to further problems, with gas pumps running dry during 2021 as supply chains collapsed under the lack of labour.
According to business leaders, supply chain disruptions are expected to last until 2023 and continue to affect everything from fuel to food, with prices spiking across numerous essential sectors of the economy.
Russia’s invasion of Ukraine and supply chain disruptions
The crisis has been exacerbated by Russia’s invasion of Ukraine in February 2022. The war has massively inflated the price of fuel and other goods and, according to experts will almost certainly prompt Western companies to reduce their dependence on China and Russia for transportation and the supply of raw materials.
How are businesses responding to supply chain disruptions?
As these supply chain disruptions accelerate, businesses are changing their strategies.
Recent analysis of nearly 600 manufacturing businesses using Unleashed in the UK, for instance, found that ‘safety stock’ held by UK SME manufacturers has shot up by about 34%. This suggests a shift from the more agile and streamlined Just-In-Time model to the more risk-averse Just-In-Case model.
Scroll down for more detail on the techniques businesses are using to shore up their supply chains.
How do you build resilience in a supply chain? 14 Techniques and Tips
Ben Vear from Minor Figures answers the question of how to build supply chain resilience in a nutshell: “People, systems and planning – that’s how you build in resilience from the start.”
In the current disrupted and high-inflation environment, building a resilient supply chain is now more essential than ever – and perhaps more difficult.
Here we unpack the techniques and strategies you can use to achieve this, with advice and tips from a panel of experienced supply chain professionals:
- Daniel Bull-Clearie, Head of Supply Chain, Mara Seaweed
- Sam Gilks, Senior Supply Chain Manager, Young Foodies
- Philip Oakley, Managing Director, Outserve
- David Press, Head of Operations, Three Spirit
- Ben Vear, General Manager (EMEA), Minor Figures
- Gabriel Gheorghiu, Research Principal (ERP, Project Management, eCommerce, GRC) at G2
1. Audit your supply chain systems
An audit of existing supply chain systems is a starting point, to find out how they have performed over recent years, and where the weak points are. This provides you with a baseline to work from. As Sam Gilks says: “You really need to get a baseline understanding of what you can and can’t do, what your requirements are, and where you stand at any one time.”
It sounds simple, but it’s worth taking the time to do this properly. As David Press puts it: “Take that time to have a good review of what your supply chain does, and focus on different elements of it. Look at where you can gain most benefit.”
While it’s likely that pressures due to Covid, Brexit and the invasion of Ukraine have had an impact on your supply chain, your audit may turn up pre-existing issues that these events have surfaced.
2. Question your assumptions
ERP software expert Gabriel Gheorghiu points out that an audit of risk in your supply chain starts with sense-checking the assumptions that may be influencing your strategy without you realising it.
“Supply chain professionals tend to focus on their markets (demand, competition) and technology (software, analytics) but less on their behaviour. While new software and tech can help build resilience, it’s sometimes more important to review business processes and more efficient to optimise existing technology.”
3. Make visibility your foundation for supply chain resilience
It’s also worthwhile considering the visibility of supply chain systems. Given the fast-moving nature of current events, it’s important to be able to access data in real time and understand how global forces are creating constraints to supply.
“Those foundations of visibility – that’s really key,” says Ben Vear, “Making sure good data’s going in so you can get good data back out the other end and have real clear visibility of what your position is in performance and stock holding.”
Using software that provides immediate access to information enables a business to make smart decisions around backup supply chain options, including the possibility of alternative providers or using technology as a replacement.
4. Form a close relationship with suppliers
Fostering a good relationship with your suppliers and manufacturing partners is something all our experts agree is key – especially in the current climate, as supply chains increasingly come under strain.
Sam puts it succinctly: “Relationships at the moment are just so crucial. Your 3PLs, your manufacturer – if you’re not best friends with those people at the moment, you need to start becoming best friends with them, because that’s one of the only ways to mitigate this.”
Every industry is different and has its own pressure points, and working with your community – sometimes even your direct competitors – can be an effective way to work through supply issues.
5. Inventory buffers add supply chain resilience
One way to mitigate the risk of problems with your supply chain is to hold extra inventory – in other words, holding more stock than you usually would to reduce the risk of running out of raw materials and finished goods.
But it’s wise to remember that with this technique, you’re walking a tightrope between holding too little stock and costs blowing out – so it’s all about finding the balance between the two.
“Obviously, there’s a cost of doing all that,” says Daniel Bull-Clearie, “So what’s the balance to strike between staying relatively lean and keeping costs down, and accepting slightly higher costs for that security?”
6. Diversify your network
If your lead times are blowing out for raw materials or components from your current suppliers or manufacturers, for instance, consider looking to new partners for these.
With lead times ballooning so they’re now often double or triple what they were, looking into alternative suppliers – or always having a dual supply strategy in place – can be a wise idea. After all, if you can’t get materials in for your product, you can’t make your product.
7. Localise assets or manufacturing to ensure supply chain resilience
Localising supply chains to mitigate against problems is another method our supply chain professionals agree is key to ensuring resilience – and this is true especially when moving into new markets.
So if you’re expanding into the US, for instance, consider whether it’s worth manufacturing locally to avoid shipping delays – or even to within a certain US state, to avoid internal logistics challenges.
The same is true for localising within the country you’re based in. You might consider moving your factory to cut down on trucking times and costs – which has the added benefit of being more sustainable.
8. Don’t bite off more than you can chew – and your supply chain will benefit
While it’s exciting when your business is scaling, it’s important to ensure you’re not biting off more than you can chew when you’re considering moves like selling in new markets or a retail deal.
For instance, if you’re looking at a supermarket deal, do you have the capacity to deliver the product needed? What investment will be required to ensure you can do this? If you’re looking at exporting, should you start with one or two local smaller retailers, or should you stick to D2C online transactions?
Planning and research is key here – as is doing an honest and detailed appraisal of your production capacity and the potential risks to your supply chain.
9. Boost supply chain resilience through product rationalisation
Another strategy you can use is product rationalisation. Regularly reviewing your product offerings according to criteria such as profit margin, volume will help you decide whether to retire, improve or keep existing products.
Ben Vear says this is a regular practice at Minor Figures: “Constantly reviewing that we don’t carry a tail in our range of poor-performing lines is key.”
10. Review your product ‘recipes’ to keep your supply chain tight
Reviewing your products regularly is a good idea, but just because your product’s raw ingredients have become hard to source, it doesn’t mean you have to throw your product out completely. Can you replace the ingredient, or find a new supplier for the same or a similar component?
As David Press says, you shouldn’t shy away from changing your recipes if you need to: “If you feel that you do need to reformulate, don’t be afraid to.”
It’s worth spending some time on this process to plan ahead and future-proof your supply chain against potential risks.
11. More internal communication
Mara Seaweed’s head of supply chain, Daniel Bull-Clearie, says one technique they’ve used to improve supply chain resilience is holding regular Sales and Operations Planning (S&OP) sessions. By holding a monthly meeting attended by both commercial and supply chain staff, sales and operations planning has been given more structure – which Daniel says has been particularly effective as the business has grown.
12. Upskill and grow your team to achieve supply chain resilience
While it’s not possible for every business to take one or both of these steps due to financial constraints, having a trained and dedicated supply team is one way to deal effectively with some of the issues firms are now facing.
It’s been one of the key techniques Minor Figures has used to overcome recent challenges. “Upskilling and growing the team has been key for us,” says Ben Vear, “So that’s been about going from a supply team of one to a fully built-out supply team with process and procedure, and a real tight focus particularly on forecasting and S&OP process.”
13. Inventory is key to maintaining agility
Fundamentally, maintaining a healthy level of raw materials and inventory will be key to giving your business flexibility in the current climate.
This is especially true for SMEs, who can often feel like they are the back of the queue when it comes to getting line time with their manufacturer. Having your materials at hand means you can negotiate to gain line time – which can benefit the manufacturer as well.
Can you get your product on their line in between larger runs for bigger businesses, for instance? Or can you use someone else’s allocated time if they are experiencing delays in their supply?
14. Find the right software solution
Using cloud-based software allows for a far more agile way of cooperating within the business – as well as collaborating with partners – when supply chain disruptions occur.
With so many cloud-based solutions on the market, though, it’s a case of finding the right one for your needs. And it’s not just a case of whether your inventory management has the features you need – you’ll also want to ensure it offers you the right integrations, and can scale as your business grows.
How important is data in supply chain resilience?
Data management is key to supply chain resilience.
Philip Oakley, a software implementation expert based in the UK, puts it simply: “You’ve got to know your numbers, and you’ve got to understand your data.”
Transparency around the movement of stock, how much is held at any one time, and the ebbs and flows of customer demand, are vitally important for an effective product-based business.
At times of stress, this becomes even more valuable, as the business will need to move and adapt rapidly to changing information. The faster that information is made available – in real time, ideally –the faster the business can move to implement its risk mitigation strategies to absorb the shock.
Effective use of data and information is, in this way, a far more valuable tool for managing risk than the traditional stocking-up of inventory – which creates business risks of its own.
How does technology support supply chain resilience?
Technology is an incredible asset when building supply chain resilience.
Philip Oakley advises businesses to start with the basics as a necessary foundation for implementing strategies to deal with supply chain disruptions: “Let’s get some good systems in,” he says, “So at least you can see what you’ve got, see where the gaps are.”
After you’ve got the fundamentals in place, there’s a huge range of sophisticated options available – depending on factors like time and budgetary constraints.
Technology that, for example, introduces Artificial Intelligence tools or predictive analytics can make your supply chain far more intuitive, and provide invaluable insights into problems and successes. This information can be continuously built upon to provide guidance for the business as it future-proofs itself against shocks and risks.
What are good strategies for a resilient supply chain?
There are many strategies to create a resilient supply chain – and we’ve covered off several techniques and tips above.
Broadly speaking, there are three main strategies you can employ:
- Stocking up. This is a basic but effective strategy. Essentially, it mitigates risk by creating buffers in the form of extra stock or products. However, this strategy carries its own risks, because it can lead to wasted inventory, ineffective warehousing, and extra labour and purchasing costs. As such, while it is perhaps the simplest way to manage risk, it is far from the most effective.
- Pulling back. Known as ‘nearshoring’, this is the idea of pulling back to rely on a supply chain that is much closer to home, and therefore predictable and manageable. Doing this lessens the reliance on a global network which can be buffeted by numerous unpredictable forces, and allows the manufacturer a higher degree of confidence in the ability to keep producing goods even while under stress. There is also technology such as 3D printing that can be done ‘in situ’, negating the need for a supply chain for certain products.
- Diversifying. Another strategy is to create a system whereby more than one supplier is responsible for certain steps in the supply chain. This means that if one supplier faces issues, the other can step in to fill the gap. Multisourcing in this way reflects the common expression ‘Don’t put your eggs in one basket!’ – and is a handy way of mitigating the risk of over-reliance on a limited number of supplier
Key recession indicators to look out for
Recessions are defined as two consecutive quarters of negative economic growth. This can be caused by geopolitical shocks, financial panics, falling consumer confidence, and many other interacting factors.
In the past economic downturns have occurred at approximately nine-year intervals. The last global recession was in 2008, leading some economists to believe the next one is overdue. Forecasting a global recession is tricky, but here are three indicators economists look out for.
1. Recession indicators: Factory slow-down
The health of manufacturers is a good indicator of the health of the economy. To measure this, we turn to the Purchasing Managers Index (PMI). A PMI score above 50 means manufacturing is growing. When it falls below 50, it means factory activity is shrinking; a reading below 45 hints at a recession. Economists regard the PMI as a leading indicator of economic conditions.
As countries fight the Covid-19 outbreak by staying in their bubbles, business levels have collapsed. While some producers are busier, a majority of industries are reporting a rapid fall in demand and production. Global manufacturing data shows the pandemic impact:
- US manufacturing PMI fell to 48.5 in March 2020, down from 50.7 in February
- UK manufacturing PMI fell to a three-month low of 47.8, down from 51.7 in February 2020
- Eurozone manufacturing PMI crashed to 44.5 in March 2020, down from 49.2 in February
- Japan manufacturing PMI fell to 44.8 in March 2020, down from 47.8 in February
Check out the table below to see how other countries’ manufacturing PMIs are faring in light of the pandemic:
Covid-19 has impacted manufacturing across the globe. Source.
2. Recession indicators: Businesses holding more stock/make fewer sales
The inventory to sales ratio, also known as inventory turnover, measures the amount of inventory in your store compared to the number of sales you’re fulfilling.
On a larger scale, it takes into account the stock of all the businesses in the country. A high ratio indicates sales are down, and that businesses are accumulating a stockpile of goods. Typically seen as a lagging indicator of a recession, an increasing inventory to sales ratio could be the result of a decrease in sales, meaning less revenue for businesses, or an increase in the companies’ inventory and the associated costs of maintaining the extra stock. It may also indicate supply and demand are imbalanced.
3. Recession indicators: Investors buy more long-term bonds
One of the most closely watched indicators of a recession is the yield curve on bonds. Bonds have differing maturities — some bonds mature in three months, others after 30 years.
Normally 10-year bonds have a higher yield, because the issuers have to price in a higher return to make it worth the risk for investors. After all, tying up your money for 10 years leaves you much more exposed to risk – who knows what your money will buy in 10 years time?
However, that yield can fluctuate as bonds are traded on the secondary market. If demand for short-term bonds is low, then the price goes down, which in turn makes the overall yield of the bond higher (because you’ve paid less for something that delivers a fixed return).
The yield curve, then, measures the difference in yield between US 10-year Treasury bonds, and 3-month bonds, as that changes over time.
But why is that a predictor of recession?
Basically it’s a thermometer for risk. If the yield curve goes down, it means people are competing for longer-term investments, presumably because they think the short-term economic situation is going pear-shaped.
The yield curve has inverted before every U.S. recession since 1955. Source.
An inverted yield curve does not predict the length or severity of a downturn. Nonetheless, economists look out for an inversion to warn of an impending recession. For the last 50 years, the US yield curve has inverted ahead of a recession.