Companies Must Build A Resilient Supply Chain In 2021
Can any company out there say they were prepared for Covid-19 and the powerful wake-up call it delivered?
In the logistics world, the pandemic forced leadership teams to confront a new era of supply chain volatility and rethink their supply chain strategies to lower the risk of disruption.
Previously, many companies focused on reliability and cost-effectiveness. We already see the shift away from that model. A 2020 Bain & Company and Digital Supply Chain Institute Survey showed that only 36% of senior executives ranked cost reduction as one of their top three supply chain goals. Three years ago, 63% of these same executives had cost reduction as one of their top goals.
Covid-19 highlighted the need to stop leading with cost-effectiveness and start leading with a resilient supply chain. And a resilient supply chain demands visibility, traceability, and sustainability across the entire supply chain.
Building a Resilient Supply Chain – Start with Flexibility
Building supply chain resilience must be a two-step process. First, companies need to address flexibility when it comes to finished goods to meet modern customer demand. After flexibility, companies should rethink their supply chain strategic approach.
While rethinking end-to-end strategy, leadership have several considerations:
single versus multiple sourcing
proximity to customers
whether to produce in-house or outsource
where to manufacture at each stage of assembly
where resilience matters the most
After reviewing these factors, leadership teams should better understand where they need flexibility and where flexibility will increase costs so much that the company finds itself no longer competitive.
A Resilient Supply Chain Also Needs Visibility
In the past, limited supply chain visibility affected the ability to assess geographical and geopolitical risks. To improve economies of scale, companies decreased supply chain costs by breaking apart some value chain steps and connecting each step with a limited number of geographies and companies.
What about shifting production closer to home to increase visibility and improve supply chain resilience? The previously mentioned Bain report showed that 45% of respondents plan to do this. Shifting production closer to home markets reduces manufacturing costs without significantly increasing costs - especially for companies with processes capable of automation.
Traceability Makes a Difference in a Resilient Supply Chain
To achieve resilience, companies must incorporate both visibility and traceability into how materials and goods enter and move through the supply chain. Traceability also ensures delivering goods to the market does not do any environmental, social, or economic damage.
Traceability provides information about how supply chains recapture and reuse raw materials at the end of a product's life cycle. Without traceability, companies cannot fully achieve sustainability by reusing, recycling, or remanufacturing their products.
To fully capture sustainability opportunities, supply chains need both visibility and traceability.
Today, leadership teams evaluate their contract supplier and manufacturer risks based on two location factors: the supplier's headquarters and the manufacturer's production facilities. We see this in the automotive and aircraft industries with technologies such as 3-D printing and IoT, and AI.
Corporations Working with Startups for Resilient Supply Chain
We have seen corporations work with startups to build a resilient supply chain. A few successful examples include:
Nestlé: Nestlé partnered with French-based startup Connecting Food to boost consumers' trust in the food system by using blockchain to improve transparency in the food chain. Connecting Food’s platform allows food companies to trace products batch-by-batch and audit them in real-time as they move through the food chain. Their clients include corporations like Mondelez and Axéréal.
Quickload: Sente’s portfolio company Quickload helps companies deal with the growing port congestion problem. In the past, importers that rely on their own preferred trucking companies (carriers) to move containers from the port had to depend on the capacity and availability of those trucking companies. With Quickload, importers book container shipments in a single place, and Quickload distributes the jobs across multiple carriers if needed.
Boston Consulting Group: OpenSC, a startup that created a digital platform leveraging technologies such as blockchain to improve supply chain transparency, received four million US dollars in seed funding. Launched in January 2020 at the World Economic Forum in Davos, OpenSC is an impact venture developed by the World Wide Fund for Nature Australia (WWF-Australia) and BCG Digital Ventures (BCGDV), the global corporate venture, investment, and incubation arm of Boston Consulting Group.
Why Resilient Supply Chains Matter
All industries need visibility, traceability, sustainability, and resilience. In some cases, visibility and traceability solutions are industry-specific.
Resilient supply chains help companies react swiftly during a crisis such as a pandemic. They also enable companies to survive during rising trade tensions, market shocks, disruptive technologies, and the increasingly severe effects of climate change.
Resilience allows companies to reroute and substitute inputs, which is essential for quick turnaround delivery. A resilient supply chain enables companies to keep up with customers' changing demands, giving companies with a resilient supply chain a competitive advantage.
Building a resilient supply chain enables companies to create a new source of competitive advantage. But this only happens when the company has clear visibility, traceability, and sustainability across the entire supply chain.
Companies with the best visibility and traceability will have the most competitive supply chains in their industries. The first to market will have the opportunity to set visibility, traceability, and sustainability standards.