Supply chain disruption is a real problem that companies across all industries are grappling with on a global level. Whether it’s a supplier that goes out of business, a natural disaster, or a cyberattack, the number of potential threats grows every year. In a recent article, CIOReview points out that nearly 75% of companies reported at least one supply chain-related issue during the prior year, and that nearly 20% of those organizations wound up going out of business as a result.
To ensure better quality of supply chain, the magazine recommends a thorough visibility and communication between organizations and supply chain vendors. In other words, procurement is well positioned to play a leading role in keeping supply chain disruptions at bay. “Failing to assess the vendors would render companies vulnerable to potential quality risks,” CIOReview points out, “damaging the brand reputation and hence negatively impacting profit.”
Supply Chain Disruption: Up 36%
Managing supply chain risk isn’t getting any easier. According to SCMR, global supply chain risk events increased by 36% in 2018. Citing a Resilinc EventWatch report, Patrick Burnson writes that not only have global risks increased overall, but volatile and uncertain geopolitical conflicts—including the U.S.-China trade conflicts and Brexit—pose some of the most potentially costly and disruptive supply chain impacts.
“Supply chain, sourcing, and procurement professionals are on the front lines of managing global trade risks for their companies,” said Bindiya Vakil, Resilinc CEO. “2018 challenged them in new ways, and 2019 is shaping up to present continued uncertainty as long-standing trade relationships are reconfigured.”
In 2018, Resilinc EventWatch issued a total of 2,629 event alerts—more than seven per day on average, and an increase of 36% year over year, Burnson writes. Of these, the firm classified 907 events as those impacting its customers’ mapped supplier sites, and therefore requiring an impact assessment. Across the globe, Resilinc’s event data showed that 21,152 suppliers and 58,191 supplier sites producing 552,950 parts across multiple tiers in the supply chain were potentially affected during 2018.
What Can Happen Will Happen
Unfortunately, supply chain risk operates a lot like Murphy’s Law in that very often what can happen probably will (at some point, anyway). According to Resilinc, the five types of disruptive events that occurred most frequently in 2018 were:
- Mergers and acquisitions
- Factory fires/explosions
- Reorganization/management change
- Business sale or spinoff
- Factory shutdown/disruption
“Planning can be the silver bullet in responding to natural and unnatural threats,” Antony Lovell writes in “Natural or unnatural: the science of planning for any disruption.” “It sounds simple, we all do it, sometimes without even thinking about it. But there are a number of building blocks involved, which many businesses often forget about: integrated technology, common data, shared processes, and cross-team collaboration. These form the foundation on which a successful planning strategy is built.”
Collaboration across departments also goes a long way in helping companies identify and either avoid or successfully react to issues that could threaten their supply chains. For example, procurement can work with finance, sales, marketing, and other departments to make this happen. “Companies need to collaborate across teams and connect every part of the business, from finance and sales, to marketing and the supply chain,” Lovell writes, “because when something changes in one area, it will ripple across the business, and you have to be able to respond at speed.”
In some cases, addressing potential supply chain disruptions is as straightforward as paying attention to current events and doing some scenario planning. To counter the recent spate of tariffs, for example, many electronic vendors have been considering moving production out of China to other regions such as Southeast Asia. “But relocating manufacturing takes time and money, which could divert resources away from product research and development,” the tech industry recently wrote in a letter to President Trump, asking him not to raise tariffs. “Much of this R&D occurs at U.S. facilities with contributions from American workers.”
A Delicate Balance
As sourcing becomes more complex, organizations are being pushed to lower costs, meet customers’ ethical sourcing expectations, and move goods as quickly as possible—often around the globe. In “Can Your Business Handle These Supply Chain Disruptions?,” Sherry Gray discusses how these outside forces put additional pressure on companies to only work with trusted vendors. “Supply chains are compressed as a result,” Gray writes, “which can limit sourcing flexibility when disaster strikes.”
Supply chain management is a delicate balance, Gray continues. Too much overstock and your business is wasting money on storage and suffering a higher risk of loss due to spoilage, damage, or aging. “Too little, and your ‘TTS’ or Time to Survive (i.e., how long a company can continue to operate after a disruption) is minimal,” she writes.