It goes back to Adam Smith and the pin factory: specialization leads to economies of scale that drive down prices. Today’s global supply chains have been built on the same principle in order to get their specialized goods to the masses.
This global network of design teams, contract manufactures, and third-party logistics providers, all work across complex sales and distribution channels to keep products moving, costs down, and sales growing. While highly effective, we’ve seen how this process in vulnerable to major disruptions. How should companies respond in order to create greater resilience?
Strength and vulnerability
Let’s first set the stage by highlighting a typical supply chain scenario: metals mined in the Congo or West Virginia are shipped for processing to Asia where they are turned into high-end components that go into, say, flat-screen TVs. The finished product is then shipped to the Port of Long Beach in Los Angeles for just a few dollars. This is a highly simplified scenario and details can differ, but it paints the general picture.
The costs for the global crisscrossing involved in this scenario are kept down, in part, by increasingly large container ships. Think of the Empire State Building turned on its side. Today’s largest – and lowest cost – container ships are so big, in fact, that they can’t fit through the Panama Canal.
Thus, here in the United States – when demand surged in the run up to the holiday season – we started to see bottlenecks at Long Beach. These bottlenecks are still with us today.
It’s important to remember that COVID-19 is just one of many sources of disruption that companies face today. Others include climate events, political upheavals, trade disputes, and more. All of which calls for supply chains that are as resilient as they are efficient.
One key to a resilient supply chain is digitalization. And with a more digitalized supply chain, you can handle disruptions better, faster, with less complexity, and at a lower cost. But what does a resilient, digitalized supply chain look like? Think in terms of the following key areas:
Agility: To sense, predict, and respond to market dynamics
First, you need to proactively sense market and supply chain shifts to be able to quickly and profitably respond. This is about having visibility into events as they happen and anticipating disruptions before they happen.
It’s also about synchronized planning processes – where planning is done continuously across design, production, logistics, and operations to better anticipate and mitigate disruption before it impacts operations.
Productivity: To high quality mass produced or make-to-order products faster
A resilient supply chain shouldn’t sacrifice on productivity. By digitalizing industrial processes along the lines of Industry 4.0, you can automate manufacturing operations to increase throughput and reduce production cost.
Connectivity: To ensure collaboration and visibility across the end-to-end supply chain
With data visibility and advanced analytics, you can deliver high-quality products faster in response to (and even ahead of) customer demand. You can also avoid costly machine breakdowns leading to production loss by monitoring and predicting the health of machines.
By digitally linking all the trading partners your business relies on, you’re in a much better position to anticipate disruptions and take appropriate actions needed to keep serving your customers.
The goal is to transform fragmented supply chains into agile, collaborative networks for supply, logistics, asset management, and service – all connected by dynamic workflows with real-time data to increase the pace of business.
Sustainability: To balance the importance of profitability, people and planet
Sustainable businesses are resilient businesses – and no business can claim to be sustainable without a sustainable supply chain. Keys to success are responsible design practices, ethical sourcing, sustainable manufacturing practices, and safe maintenance and services.
With deep visibility into supply chain data and the ability to evaluate and verify partner practices, you can more effectively minimize waste, cut emissions, and reduce your carbon footprint. And with sustainability processes built into the way you work, you can comply more effectively and meet the expectations of consumers, stakeholders, and regulatory authorities everywhere.
To learn more about how to replace the vulnerabilities and risks across global supply chains, download this recent Oxford Economics Study.