Does your company have a future-proof supply chain?
Supply chain diversification is certainly not a new concept. Many businesses have seen disruptions in supply chain before. Natural disasters like earthquakes, tsunamis, tornados, and wildfires have caused supply chain disruptions. Additionally, transportation failures and cyber-attacks are commonly cited as major factors of disruptions in supply chain.
Until recently, pandemics were not typically listed as a top cause if they were even listed at all. The most recent COVID-19 pandemic changed that. Some experts, like Morris Cohen, Wharton professor of operations, information, and decisions, said that the coronavirus pandemic led to an “extraordinary type of disruption” and many have never seen anything quite like it before. Although many businesses have “supply chain risk management processes” in place, those processes simply weren’t comprehensive enough to deal with the major issues created by the coronavirus pandemic (1).
Because we never know when the next disruption could arise, or what might cause it, companies are already starting to reevaluate their current supply chain risk management procedures. In late March, PwC surveyed 50 CFOs, mainly from Fortune 1000 companies, and found that a growing number of them “expect to change the breadth of their supply chain.” While CFOs were initially focused on near-term supply chain solutions, the conversations have shifted to what supply chains should look like long-term. Tim Ryan, U.S. chairman and senior partner at PwC said, “I see the focus right now on diversification.” He went on to say, “executives who may have previously felt sufficiently diversified sourcing from three countries may now seek exposure to 10” (2).
A recent survey conducted by EY showed another important asset in a well-rounded supply chain: resiliency. According to Robert O’Sullivan, Vice President of Finance, Kellogg’s Europe, businesses have often “looked at their supply chains primarily through the lens of cost as an enabler to margin expansion. Post COVID-19 there will be an additional lens front and center: resiliency. The challenge will be to find the right balance between the two. Those with a resilient supply chain have seen huge competitive advantage in the recent period of COVID-19, and I think this will continue in the longer term” (3).
So, how can companies effectively diversify their supply chain and create resiliency? A blog post from Exostar gives some valuable examples of how companies can diversify their supply chain and why it’s so important.
While they do suggest that having a variety of suppliers can speed up your response time if a supply chain disruption incident does occur, simply onboarding a bunch of new suppliers quickly isn’t necessarily the best course of action. In order to truly optimize risk management, they advise that companies be strategic in the suppliers they choose. “For example, select a mix of large and small businesses, and include a range of geographical locations. Small businesses can be more agile and easier to work with, but what if they suddenly close their doors? That’s why it’s good to include a reputable large business that can easily step up.”
They go on to say that beyond having a larger number of suppliers, companies should also consider having suppliers in more than one region. Specifically, because supply chain issues can arise if that area experiences a natural disaster, or as we have all seen most recently, a pandemic. The coronavirus pandemic caused some areas of the world to shut down completely, resulting in massive delays and supply chain issues (4).
A diversified and resilient supply chain will give you a huge strategic advantage, improve your business performance, and ensure your company is prepared for whatever the future might bring.
(1) Veeraraghavan, S. (2020, March 17). Coronavirus and Supply Chain Disruption: What Firms Can Learn. The Wharton School, University of Pennsylvania. https://knowledge.wharton.upenn.edu/article/veeraraghavan-supply-chain/
(2) Cosgrove, E. (2020, March 31). PwC: Supply chains will broaden, diversify in the wake of coronavirus. Supply Chain and Dive. https://www.supplychaindive.com/news/coronavirus-pwc-supply-chains-diversification/575159/
(3) Morrison, O. (2020, May 28). Coronavirus era puts resilience of supply chains ‘front and centre’ warns Kellogg. Food Navigator. https://www.foodnavigator.com/Article/2020/05/28/Coronavirus-era-puts-resilience-of-supply-chains-front-and-centre-warns-Kellogg?utm_source=newsletter_daily&utm_medium=email&utm_campaign=28-May-2020
(4) Peaktwo Developers. (2017, September 28). How can supply chain diversification reduce your risk? Exostar. https://www.exostar.com/blog/can-supply-chain-diversification-reduce-risk/