A study by the Boston Consulting Group (BCG) suggests that only 10% of companies are truly prepared for supply chain disruptions.
The study found that out of 150 companies, only a tenth is able to anticipate and recover from a crisis in the short term and be resilient in the medium and long term.
Most, 90%, are simply reacting to crises as they occur, says BCG, arguing that almost all companies "should increase their investments in areas/skills that increase their resilience," and adds that "organizations that invest significantly can create a strong competitive advantage."
Risks that companies are unprepared for include disruptions at their own plants, supply disruptions from suppliers, and external risks such as geopolitical events and natural disasters. As a result, BCG says that when crises occur, these organizations "lack the ability to quickly identify and assess risks, react promptly, and absorb the impacts of disruptions throughout the supply chain."
In response, BCG has released a framework for resilience of operations:
1. ESTABLISH VISIBILITY AND ASSESS RISKS
Companies that want to build resilience need to have a clear view of inventory across suppliers, factories, warehouses, logistics providers, and customers. Such visibility, says BCG, enables robust end-to-end planning and inventory management, making it easier to quickly assess the impacts of potential disruptions.
To establish full visibility, it goes on to say that organizations must get a clear view of supplier operations, all the way down to raw material sources, using an always-on network map to show flows along the various levels.
2. EVENT MONITORING AND SCENARIO PLANNING
Faster companies can react in a crisis in the same way they are more likely to gain advantages in the procurement of scarce materials or resources, says the same source. Rapid response involves monitoring external events that could impact operations along the supply chain, and proactively sending alerts of potential deviations and disruptions. Scenario planning and crisis response plans are other suggestions.
3. HAVE AN INTEGRATED SOURCING STRATEGY
Organizations must design their supply network to reduce single points of failure, increase supply redundancy, and shorten the supply chain. BCG adds that recent crises have shown that procurement requires a more integrated strategy than in the past, and that organizations need a good understanding of supplier lead times and disruption risks.
Companies also "need to make sourcing decisions in conjunction with strategic reserve inventory decisions from multiple suppliers," the study adds. "Critical materials should always be available from two or more sources to ensure that supply capacity is always available," they advise.
4. PLANNING AND INVENTORY MANAGEMENT
Resilient companies plan with volatility in mind. "They strategically implement inventory, allocating their most critical materials and products across multiple locations to meet customer service levels while minimizing inventory and storage levels.
They add, "By integrating resilience considerations into short-term sales and operations execution as well as long-term sales and operations planning, organizations are better equipped to balance cost, risk, and working capital." On the other hand, companies must develop resilient products by building flexibility into design specifications and using standardized components wherever possible. "This approach allows for easier substitutions and access to a larger pool of suppliers or manufacturing locations. They should also develop a robust change process so that substitutions and deviations from the original peoject/design can be evaluated and adapted as needed."
This article is republished in a partnership with Supply Chain Magazine. Read the original text here.