What is a resilient supply chain?
A resilient supply chain is defined by its capacity for resistance and recovery. That means having the capability to mitigate most supply chain disruptions and greatly limit the impact of those that occur. Operational risk and interruption can threaten multiple areas of the supply chain. Worldwide disasters, as we’ve seen with COVID-19, can have a far-reaching, global impact upon supply chain logistics, suppliers, and workforces. Other supply chain disruptions can come in the form of unexpected competition, sudden market trends, or even rapid changes in customer shopping behaviours.
The most resilient and agile supply chains are designed to do more than simply resist and recover. They are built using processes and modern supply chain technologies that allow them to forecast, anticipate, and respond quickly to whatever risks or opportunities the future brings.
An agile supply chain in a changing world
As long as there have been supply chains, risk management has been a challenge. Due to the interdependency of all its links, even a small problem in one isolated region has the capacity to compromise an entire global supply chain. So, when major worldwide trends and events take place, the potential for widespread supply chain disruption is enormous. The pandemic illustrated this fact in an unprecedented fashion with the knock-on effects of labour shortages and inventory depletion predicted to carry on well into the foreseeable future.
Other recent factors that are having extremely disruptive effects on traditional supply chain practices include the rapid rate of change in consumer behaviours – and a highly unpredictable trade and political climate. In the past 10 years, e-commerce spending has tripled, and in the first seven months of 2020, there was a 149% rise in online shopping from the previous year. With the growth of e-commerce, there has also been a rise in consumer demand for delivery speed and personalised shopping experiences. The Amazon Effect refers to the increasing expectation for next-day delivery and how that has impacted businesses and logistics networks. In order to be resilient enough to adapt to these growing demands, supply chain managers have had to make rapid and significant changes to their logistics and warehousing networks and find ways to work with increasing numbers of third-party fulfilment partners.
Even before the repercussions of COVID-19, U.S. businesses were striving to reduce their dependency upon overseas manufacturers and suppliers. By 2019, foreign tariffs and overseas trade policies had become increasingly unpredictable and businesses were looking for technological solutions to make their supply chains more self-reliant and resilient. Integrating digital transformation and Industry 4.0 technologies into supply chain operations is becoming a growing priority for global business leaders.
Inflation and supply chain resilience
In a recent survey of more than 100 freight, supply chain, and logistics businesses, 92% of respondents said that the inflation problem was a major concern and was having an effect on their businesses. Many of the global issues that led to supply chain disruptions – including labour shortages, inventory scarcity, and political uncertainty – are some the very same forces that are driving inflation. Unsurprisingly, the best businesses are finding that continuous and integrated supply chain planning is their best defence against uncertainty. With technologies that combat inflation, companies can see around corners, adjust their plans in real time, and build the resilience they need to adapt to rising prices and constantly changing consumer demands.
How does supply chain resilience work?
Good supply chain management means being able to respond quickly to operational disruptions and having a flexible contingency plan in place. But to be truly resilient, a supply chain must be able to forecast and anticipate disruptions, and, in many cases, avoid them altogether. In 2019, PWC commented on the importance of supply chain resilience, saying, “It’s not just about playing defence – it’s also about playing offense – finding competitive advantage by shaping a supply chain resilience strategy focused on disruption avoidance.”
- Resilient supply chains work by optimising production with supply chain planning. Strategic supply chain planning is an essential step in achieving resiliency, as it synchronises all components of the supply chain and drives greater visibility and agility. Through supply chain planning, supply and demand requirements are better understood, and production is harmonised. This connected, forward-looking approach helps businesses better anticipate issues, limit the impact of supply chain disruptions, and improve overall operations.
- Resilient supply chains work by understanding and leveraging data. When a business has the digital systems in place to analyse and make sense of Big Data, it leads to significant improvements in supply chain resiliency. Systems empowered with artificial intelligence can curate disparate data sets from across the business and around the world. News, competitor activity, sales reports, and even customer feedback can all be analysed together to spot trends and opportunities. Connected devices within the system are continually being listened to, leading to real-time insights as to where and how workflows can be automated and optimised. Digital supply chain technologies, like artificial intelligence (AI), machine learning, and modern databases, not only procure and manage Big Data – they analyse and learn from it in an almost infinite combination of ways. This powers intelligent automation across the network and gives supply chain managers the real-time insights they need to respond quickly to disruption and unexpected events.
- Resilient supply chains work by diversifying suppliers and manufacturing partners. Traditionally, supply chain managers looked to minimise the number of partners and suppliers in their network to reduce operational and logistical complexity. This strategy relies upon social, environmental, and political stability. Unexpected disruptions in one region can impede or even halt operations across the entire network. In assessing strategies for supply chain resilience in June 2020, Gartner points out that “Disruptions to supply chain operations have intensified in the past few years. This means that the cost of retaining multiple supply locations must be seen more as a cost of doing business, rather than an inefficiency.” Resilient supply chain technologies, such as blockchain, sensors, and advanced analytics, allow supply chain managers to oversee complex partnerships and supplier contracts, even in the most distant regions of their network.
- Resilient supply chains work by implementing capacity and inventory buffers. Supply chain profitability has long depended upon minimising surplus and keeping inventories as lean as possible. Capacity and inventory buffers cost money, and supply chain managers have often gambled against disruptions in order to keep costs low. When the pandemic hit, many companies learned the true cost of that gamble. A recent Financial Times article addresses this trend, explaining that companies should move from “‘just in time’ to ‘just in case’” when it comes to restructuring their supply chains and manufacturing operations – and shift their investment priorities toward resilience-building solutions. Using digital supply chain technologies, supply chain operations can include on-demand manufacturing, virtual inventories, and predictive demand forecasting to remain resilient, even in times of unexpected disruption.
Top three benefits of a resilient supply chain
In an increasingly competitive market, finding a profitable balance between supply and demand is a major challenge for every supply chain manager. Many companies that cut corners on diversification, supply chain technologies, and other resilience measures have recently been finding out the true cost of those decisions. But when companies invest in diversification, supply chain technologies, and other resilience measures, there are many potential business benefits, including:
- More efficient operations: Greater resilience often leads to minimised risk and greater ability to invest in innovation and growth. In a 2020 global business analysis, Bain and Company reported that companies that had prioritized investment in supply chain resilience had up to 60% shorter product development cycles and were able to expand their output capacity by up to 25%.
- Improved productivity: Resilient supply chain technologies contribute to an overall rise in productivity across the system. In a 2020 survey by McKinsey, supply chain leaders from around the world report improved productivity as a result of resilient supply chain systems, and 93% of those surveyed plan to make resilient supply chain strategies a top priority for investment in the coming year.
- Risk reduction: Supply chain operations often represent the greatest area for risk and loss in many companies. By their natures, supply chains are globally dispersed and complex in their functionality. This makes them especially vulnerable to risk. Resilient supply chain technologies reduce risk by allowing visibility into all operations across the network – and empowering businesses to optimise and adapt their processes and logistics in real time.
Supply chain 4.0 technologies
Digital transformation and modern supply chain technologies give businesses the resilience and competitive edge they need to respond quickly – to both disruptions and opportunities.
- Artificial intelligence (AI): By sourcing and analysing data from many disparate sources, AI-powered supply chain solutions can provide deep procedural and operational insights. Predictive analytics and Big Data analysis can help forecast risk and demand, and recommend actions and responses across the business.
- Machine learning: As an application of AI, machine learning makes it possible to discover patterns in supply chain data and to identify these influential factors – while constantly learning in the process. This allows supply chain managers to respond quickly with the best possible workflows and operational strategies.
- Industrial Internet of Things (IIoT): An IIoT network in a supply chain is comprised of connected devices and objects that are fitted with sensors and unique identifiers, giving them the ability to send and receive digital data. They collect data and communicate with the central system. AI can analyse and interpret this data to inform quick decisions and intelligent automation of workflows and processes across the supply chain.
- Additive (3D) printing: Smart factories can rapidly reprogram 3D printers to temporarily produce certain products on demand, without long-term disruption to normal business processes. The accessibility of potential, virtual inventories allows supply chains to protect against disruption.
- Robots and autonomous things: Intelligently automated for speed, efficiency, and accuracy, robots and drones can adapt their processes on demand to meet rapidly changing needs. They also reduce the risk of injury by relieving human workers of overly repetitive or dangerous tasks.
- Modern databases: The most resilient supply chain solutions rely on Big Data, advanced analytics, and real-time insights. Equipped with a modern ERP system and an in-memory database, supply chain technologies can be optimised to run at their fastest and most resilient.
SAP Insights Newsletter
Gain key insights by subscribing to our newsletter.