Managing Risk to Build Resilient Supply Chains

In the early ‘90s, American manufacturers began transitioning to a global supply chain model. This shift resulted in the movement of manufacturing facilities off shore in search of lowered labor costs and economies of scale. 

However, this shift also exposed companies to an array of new supply chain risks including disruptions, cyber attacks, labor disputes, IP risks, extreme weather events, and geopolitical tensions. Recent events with COVID-19 and the war in Ukraine have only highlighted the structural vulnerabilities inherent to global supply chains.

Given these threats, effective risk management has become essential for manufacturers to foster supply chain resiliency. This resiliency drives the first blog in a two-part series based on our recent webinar topic, “Survival Strategies amid Supply Chain Disruptions & Economic Uncertainty.” In this first blog, we break down supply chain risk management.

What Is Supply Chain Resilience and Risk Management?

Traditionally, a resilient supply chain means being able to adapt to change and recover from disruptions quickly and effectively to maintain essential functions. Said another way, it involves constructing and managing a given supply chain in a way that you can continue operating effectively even in the face of unforeseen disruptions, events, and disturbances. Here, risk management is an essential aspect of supply chain resilience, empowering organizations to prepare for, identify, and address supply chain risks to minimize their impact and allow business to continue as usual.

Why Is Supply Chain Resilience Important?

The recent global disruptions have demonstrated the fragility of modern supply chains. In many cases, all it took was a single issue along the chain to start a domino effect, bringing many operations to a grinding halt. As Deloitte notes: 

“The supply chain, like the business itself, is a vast and complicated network. Companies source products from suppliers, who might source materials or components from others, who in turn might source from others. When one part of this network is exposed to risk, all parts are vulnerable to disruption.”

Businesses that properly plan and prepare can foster supply chain resilience, positioning themselves to thrive, even during unpredictable times. The ability to adapt and recover quickly makes it possible to turn disruptions into opportunities and gain additional market share.

Some natural consequences of reduced risk exposure coupled with more proactive responses to risks often result in: 

• Better collaboration across the supply network
• Shorter product development cycles
• Cost reductions and revenue protections 
• Less volatility in the prices of labor or raw goods 
• Increased output capacity
• Greater productivity 
• Improved customer retention
• Enhanced brand reputation

What Is a VUCA Environment? 

An approach to analyzing the challenging and unpredictable environment that is the modern supply chain is captured by the acronym VUCA : 

• Volatility – The ever-increasing pace of changes in the market, driven by technological advances, shifting customer demands, globalization, innovation, and market competition, result in varying volatility.
• Uncertainty – Unpredictable future events — such as wars or pandemics — make it challenging to forecast, analyze trends, and plan.  
• Complexity – The growing interconnectedness of organizations, industries, and markets makes it more challenging to identify, assess, and mitigate risk effectively. 
• Ambiguity – The lack of clarity in situations, causal relationships, and data sets can result in misinterpretations or misaligned strategies.   

It’s important to understand that while these factors are interrelated, the proper response to each factor will not be identical. Even so, manufacturers that factor VUCA into their risk management strategies will be better equipped to handle the complexities of the global supply chain.

How to Build a Resilient Supply Chain

When it comes to creating a robust and resilient supply chain, it’s important to remember that risk will always exist in some shape or form. This means the objective isn’t to eliminate it but rather create and execute a strategy that allows the business to maintain operations and bounce back swiftly from disruptions.

Here are the four central pillars of an effective risk mitigation plan: 

•  Developing processes and tools for forecasting, anticipating, and addressing disruptions; and leveraging data analytics and predictive modeling to stay ahead of potential threats.
•  Establishing a proactive mindset by creating a "war room mentality" and assembling a dedicated crisis response team.
•  Conducting simulations and stress tests to uncover vulnerabilities in the supply chain, evaluate response plans, and enhance responsiveness to various disruption scenarios.
•  Adopting a dynamic approach to supply chain risk management by consistently reviewing, optimizing, and updating long-term plans to accommodate new information, emerging risks, novel technologies, and shifting business landscapes.

Three Key Factors for Building Resilience

To achieve a level of resiliency, you must lean heavily on three essential factors: 

1. Your people –To build supply chain resilience, it's vital to involve various stakeholders who can contribute diverse perspectives and expertise, including:

• Top management
• Purchasing/procurement /supply chain managers 
• Operations and production managers
• Quality control and assurance teams
• IT and cybersecurity teams
• Finance and risk management teams
• Suppliers and supply chain partners 

By collaborating with these various experts, you can build a more comprehensive and effective strategy and be better prepared should a crisis occur. 

2.  Data – In a digital world, data is a driving force that allows supply chains to run. Manufacturers can leverage data analytics to identify risks, optimize processes, and make informed decisions. Here, the goal is to find a balance between falling into “analysis paralysis” and jumping to a solution without adequate thought.

3.  Process – There are countless ways manufacturers can drive process optimization. These strategies include: 

• Supply chain planning
• Sales, inventory and operations planning (SIOP) processes
• Utilizing capacity/inventory buffers
• Partnering with several suppliers/supply chain partners
• Contractual relationships for critical parts supply
• Supplier scorecards

Building Resilient Supply Chains with CMTC

Although you may never be able to entirely eliminate risk within the supply chain, there are actionable steps you can take to mitigate risk and build resilience across the value chain, even in a VUCA environment.  

And, CMTC can help! As a trusted advisor providing solutions that increase manufacturers’ productivity and global competitiveness, our team of experts can assist in optimizing your supply chain while implementing measures like business continuity planning and disaster recovery planning that can reduce your risk profile.  

If you want to learn more about what we do, contact us today.