The Road Map Out of This Mess
For years, I have been a proponent of operating a lean and agile supply chain, but some now say the COVID-19 pandemic has revealed the shortcomings of a supply chain that is perhaps too lean.
To be “lean,” however, doesn’t mean maintaining extremely low inventory levels with no coordination or backup plan. It also appears some have forgotten the “agile” part, meaning you need flexible alternatives at the ready.
In any case, it appears that many companies and their supply chains were caught off guard by the COVID-19 crisis despite recent disasters such as the earthquake and tsunami in Japan, volcanic eruptions in Iceland, and hurricanes Maria and Harvey.
In my September 2017 article, “Global Supply Chain Risk: Don’t Wait, Mitigate,” I stated that in order to minimize risk in their supply chains, companies need to “first identify the sources and types of potential risk, and estimate their probability and impact.” Supply chain risks come from an array of potential sources, including global pandemics.
Risk Mitigation Strategies
To combat this type of scenario, companies should look to supply chain risk mitigation strategies that include boosting capacity, engaging redundant suppliers, increasing responsiveness and flexibility, aggregating demand, and increasing source capabilities. Where appropriate, companies can also consider adding inventory by decentralizing the stock of predictable, lower-value products and centralizing the stock of less predictable, higher-value products (such as personal protective equipment and ventilators in our current case).
Where to Start
According to a 2013 Deloitte survey, while many company executives realized supply chain risk was an important factor in their decision-making, many didn’t feel their programs were effective. I don’t think things have changed much since then.
A good first place to start in the risk mitigation process is mapping your supply chain. Make sure you know the answer to questions such as:
- What are the physical locations of your suppliers’ manufacturing facilities and those of their suppliers?
- Which parts are manufactured at each location?
- What is the history and frequency of disruptions that occur at each facility and geographic region, due to either natural forces (hurricanes, floods, earthquakes) or other factors (labor strikes, power outages, quality issues)?
Many sophisticated software tools are available to help map your supply chain. Smaller companies that can’t afford the investment can analyze their bill of materials and focus on key components.
work from the top down
This analysis typically starts with the top products by revenue, working down through their component suppliers and their suppliers, all the way to raw materials suppliers. The goal is to go down as many tiers as possible.
The map should also include information about which activities a primary site performs, alternate sites the supplier has that could perform the same activities, and the lead time for the supplier to begin shipping from the backup site.
Companies that invested in mapping their supply networks before the pandemic were better prepared with clearer visibility into the structure of their supply chains. The mapping gives them a vast resource of information at their fingertips within minutes of a potential disruption.
Mapping helps you determine which suppliers, sites, parts, and products are at risk, giving your company a better chance to secure constrained inventory and capacity at alternate sites.