7 strategies for a more resilient Supply Chain
In a supply chain context, this is no different: in an environment in which companies buy from suppliers, who in its turn depend on raw materials from other companies, any change can expose the entire ecosystem. With such complexity, managing risks is fundamental to make the area resilient and capable of conducting new business in record time.
The good news is that there are an increasing number of good practices to be followed to overcome this challenge. Thinking about helping the purchasing professional in this, we list seven essential tips based on what market leaders have been doing on the subject.
Concepts and trends
Historically, the concept of resilience refers to the work carried out by CS Holling, an ecologist responsible for its creation, in 1973. From then on, the meaning that this word carries keeps spreading, being applied in different areas, which range from psychology, systemic thinking and, of course, supply chain management.
With specific reference to this last point, authors Steven A. Melnyk, David J. Closs, Stanley E. Griffis, Christopher W. Zobel and John R. Macdonald, references in the area and authors of the article “Understanding Supply Chain Resilience”, this concept can be translated as “the ability of a supply chain to withstand problems and recover operational capacity after disruptions occur.”
That is, resilience and recovery form the basis for a resilient supply chain. Looking more closely at these elements, it is possible to understand that:
- Resilience is the ability of a system to totally prevent an interruption from happening or to minimize the time between the start of an unforeseen event and the time to recovery (damage containment)
- In addition, the ability to recover is linked to the ability of systems to resume production after an interruption occurs. This is done in two stages: after identifying a crisis, there is the stabilization phase and, after that, the return of productive capacities. The final performance analyzed here may or may not acquire the original performance levels, related to the type of interruption made.
Strengthening these two aspects is crucial in terms of productivity and market leadership. Companies with low resistance are not able to identify potential risks quickly, delaying the entire process of the production chain and, consequently, are identified as problematic suppliers.
However, those that manage to adapt these processes within their chain, are often considered market leaders and better quality business partners.
On the buyer’s side, this is mainly linked to mitigating risks and finding contingency plans that are elaborated in a proactive way, accelerating the response capacity in case of unforeseen circumstances – or new practices adopted quickly by the market.
How to bring this into your daily business
#1 Exploiting the full potential of data
In an increasingly data-driven society, it is clear that there is potential to generate value from it also in the supply chain. Even with the constant focus on cost reduction, investing in technology always has the potential to add value and help in decision making processes.
For example: identifying the best time of the year to get parts at the best prices from a specific supplier. In addition to generating preference vis-à-vis suppliers that, for example, have better lead time and better payment terms. The measure can reduce costs and generate more efficiency – contributing to the financial health of the area as a whole and the organization.
This is a basic step when it comes to data. There are companies that have taken advantage of the global crisis to invest in real-time vision, planning and agile methodology. Everything to respond in the best possible way to the challenges of the future, in a healthy work environment, capable of identifying and selecting talents.
#2 Be aware of the nearshoring concept
Covid-19 and the recent US restrictions on Chinese companies have put many sectors in check. As a result, companies around the world reduced prices and companies started to choose geographically closer suppliers, able to serve them in faster terms and minimizing risks.
The movement gained strength with the restrictions of international trade, but it has been a trend present in the sales ecosystem since the beginning of the 90s, with the slowbalization.
At Soluparts, we help our customers with this task through an extensive network of suppliers spread across the world. We have access to more than 15,000 brands and are always ready to meet the needs of our customers and facilitate their work with the best cost-benefit ratio.
#3 Understanding compliance rules in depth
Supply chains are growing more and more, and as a result, many companies are forced to follow an increasing number of rules and regulations. Understanding all of them may seem like a complex process, but it is necessary to have partners capable of applying them in order to generate the greatest possible security for the purchasing process.
In this sense, Glenn Yauch, a risk specialist at Deloitte, points out that leaving this aside and giving up a complete understanding of the rules is “a step towards disaster”.
With that in mind, Soluparts has already identified some compliance benefits for the purchasing department, analyzing how it is possible to go beyond avoiding risks and guaranteeing a more sustainable production chain for all involved.
#4 Investing in Research and Development (R&D)
Companies close to their customers are able to quickly identify their needs. For this to have an effect, they must foster an innovation ecosystem, capable of developing new solutions quickly.
A clear example of this is cited by Gartner when looking at what Lenovo does: the company is working to create a closed circuit of R&D for new products and, today, translates digital actions demanded by its customers into clear orders for its supplier base .
#5 Sharing knowledge with other branches
With more and more companies becoming global, it is essential that the knowledge acquired in the supply chain also gains scale. The purchasing area performs complex analysis, planning and information processing – fundamental tasks to generate efficiency and productivity in different parts of the world, knowledge and analysis that must be shared with other branches and areas such as maintenance, for example.
#6 Proactively establish contingency plans
Instead of thinking only about the negative potential that risks can bring, companies can think about mitigating this component as part of the corporate strategy. To make this task possible, Deloitte recommends that processes be rethought from end to end.
After a careful assessment of the risks that each party offers, it is possible to take advantage of the data collected to identify potential disruptions – be it good practices already recommended by the market or completely new attitudes.
The importance of this can be translated into numbers: According to Deloitte’s 2017 global business risk management survey, 74% of organizations surveyed have faced serious problems with third parties (such as suppliers) in the past three years. Up to one in five companies has experienced a complete supplier failure or an incident with serious consequences.
For this reason, it is essential that the purchasing area has contingency plans prepared even before crises happen – in addition to generating productivity, the task reduces the chances of reputation damage.
Bryan Goshorn, senior manager of Financial and Risk Consulting at Deloitte, referred to this as “staying Agile“ during the company’s Strategic Risk and Reputation practice.
#7 Adopt a centralized process flow
In areas that are so essential and require rapid adaptation, such as purchasing, implementing simultaneous rather than sequential processes can accelerate the recovery of the area after an unforeseen innovation process.
An article published by HBR exemplifies this by showing the Lucent Technologies case, which achieved significant benefits by integrating the supply chain with other areas of the company directly linked to logistics work, such as engineering and sales, integrating them through the same process chain.
Transforming the supply chain to make it more and more efficient and resilient is an increasingly coveted goal – and more current than ever – for companies around the world. To adapt in the midst of rapid changes and manage risks effectively, it is necessary to invest: in people, technologies and new management models.
This way, it will be possible to go beyond meeting the needs of the company to generate value for the area and make it possible for companies to expand their business performance potential over time.
For more tips on supply chain and purchasing, keep reading our blog.