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Let’s start with the basics first – according to the Oxford dictionary resilience is the “ability to recover quickly after something unpleasant”. In terms of supply chains, “unpleasant” can be disruptions, but also a change in consumer demand and expectations or changes in the regulatory landscape. Getting back on your feet as a company after such events should be a given, but the key word here and differentiator between companies is “quickly”. Ideally, companies barely miss a step and move on, without any impact whatsoever. 

Companies need to be able to minimize the time it takes to get back to an adequate level of operations. This means being able to meet demand at a similar cost as before the event. In essence there are three levers which help companies achieve supply chain resilience: redundancy, flexibility and readiness. 

There are various measures that can be taken to increase redundancy along a supply chain. From a sourcing perspective, you can source the same raw material or subcomponents from a variety of suppliers rather than just one. Ideally suppliers are also located in different regions on the globe in order cater for geopolitical, regulatory or environmental related risks. In addition, inventory levels of critical raw material or components should be increased to reduce the impact if there is a supply disruption – but this also comes with a cost. 

From a production perspective, it might make sense to create additional production capabilities at various sites than just in one or two. Increasing production capacity in existing sites can also make sense to support flexibility if another site’s production is disrupted. However, increasing your production footprint and capacity comes at a cost and the cost-benefit ratio should be assessed as part of a company’s risk management process. 

On the distribution side – and this is often forgotten – a conscious multichannel approach with strategic partnerships and not just one but several partners with a strong presence in the target market region is not just a sales strategy but contributes to overall supply chain resilience. After all, the supply chain only ends when the product is in the hands of the customer. But also having no just one, but maybe two or three logistic service partners you can rely on to distribute your goods in a certain market region can make sense in cases where the robustness of local distribution network is low. 

When talking about flexibility in the context of supply chains, we mean the ability to switch between processes, ideally instantaneously and with minimal switching costs. This could, for example, involve increasing production rates at a production site to supply another site which is offline, switching from supplier A to supplier B or also interchanging personnel to areas with heightened capacity needs. To be able to do this successfully, flexibility needs to be formalized – for example in production plans with increased production rate scenarios, contractual clauses with suppliers and a skilled and trained workforce. 

In addition, flexibility can be built into the design of a product, allowing for easy substation of material or components through modularization and standardization, as well as postponement production strategies. 

Finally, we need to talk about readiness, which is the linchpin of managing supply chain resilience. When we talk about readiness, we look at three pillars – supply chain risk management, an operating resilience model and a prepared workforce. 

Understanding supply chain risk is key to understanding the level or redundancy and flexibility a company needs to build up to achieve the required resilience. There is no absolute when it comes to the right level of resilience, but rather depends on a company’s risk appetite, as risk mitigation or avoidance can come with a hefty price tag. We advise to take risk management seriously, spend effort into building up a model and supporting process to evaluate and monitor risks on an ongoing basis – in short, it should become a key discipline in the supply chain management function. 

Creating an operating resilience model means implementing procedures and organizational structures that support supply chain resilience measures. Looking at the ability to switch between processes in case of a supply chain disruption, the switch itself needs to be a documented procedure, with underlying roles and responsibilities clarified and potentially system switches documented. Companies operating in high-risk environments, such as air traffic control, often have entire back-up operating models documented that enable a smooth switching. 

For everything to come together, people need to shoot out of the starting blocks in case of a disruption. This means ensuring that they have the necessary skill set through training and are familiar with a change in the operating model. Familiarity comes with regular simulation of disruptions, and we encourage companies to perform such dry runs at least once a year. 

As mentioned, pressure on supply chains has significantly improved since the times of COVID. Now is the time to prepare yourself for the next storm – it’s not a question of if, but when it will arrive. Don’t make the mistake to not invest in increasing your supply chain resilience now and end up scrambling to catch up when the waves are crashing against you. Take a conscious risk-based approach in investing in resilience measures, weighing costs and benefits against your company’s risk profile. Get in touch with us today to learn how to achieve supply chain resilience in a cost effective and sustainable manner.