How well do you understand your business specific supply chains and the complexities in them?Learn More
Have you assessed the risks and impacts to your business?Learn More
Do you have plans in place to mitigate against the risks and vulnerabilities?Learn More
How will you implement an action plan and ensure it evolves in changing circumstances?Learn More
The pandemic, as well as changes in the global economy, geopolitical environment and climate have recently increased the frequency and magnitude of both demand and supply shocks to industry globally.
Industries, sectors and businesses need a strong understanding of their exposure, vulnerabilities and potential risks to their supply chains to build robust resilience strategies into their working practices. Collective and co-ordinated action will be critical to plan for and overcome future shocks.
Ensuring a diverse range of global sources remains the best driver of prosperity and resilience in order to withstand and proactively tackle the challenges of today and the future.
This guidance identifies some important aspects to consider when thinking about ensuring the resilience of the supply chains your organisation depends on. It aims to provide you with:
- An understanding of key supply chain concepts, terminology and taxonomies
- An understanding of the warning signs that a supply chain may be vulnerable
- Considerations on how to embed greater resilience into supply chains
- Tools to build and maintain appropriate risk management plans
Supply chain mapping
Supply chains are elaborate and have a range of factors affecting their resilience, security and efficacy. The more you understand your business supply chains and their complexities upstream and downstream, the better you will be able to foresee any potential issues and prepare for or mitigate against them.
Understand the vulnerabilities
The complexity of your supply chains can lead to a range of potential vulnerabilities. Having a clear picture of them will help you identify what actions you need to take as a result.
Supply chain risk is not related to the number of suppliers you have. Using a number of different suppliers can create many opportunities and help spread the risk. You should review the length and touch points of your supply chain and your visibility of the many parts. The more nodes and distance in your supply chain, the more borders, customs clearance points, and state intervention in the operations of suppliers and buyers you may encounter.
Additional complexity comes from the variety and geographic spread of suppliers, which is directly related to the product portfolio and number of stock-keeping units that your company may have.
Its important to note that having multiple supply routes has benefits and challenges that need to be considered and balanced. Many supply chains are lengthy and complicated, making them susceptible to the effects of a number of different factors:
Can mask visibility of the full supply chain and who suppliers are subcontracting to
Could cause compromise on quality, diversity and/or ethics
Can add difficulty for firms to monitor supply chains adequately
Clustering can make manufacturers vulnerable to local and regional impacts such as weather events or geopolitical events
Potential for miscommunication or reputational damage
Reduced inventories could lead to less time to address supply chain failures
Dependence on any of these can affect overall vulnerabilities
Building diversification into your supply chain
Diversification upstream and downstream is a hugely important tool in building resilience in supply chains. Whilst mapping your chains, consider these factors:
- Diversity of suppliers and supply locations
- Diversity of transport and logistics
- Diversity of received product (finished and intermediate goods)
- Diversity of customers (providing stability through multiple income streams)
It is important to understand exactly where things are made and where raw materials come from and build strong relationships with suppliers, as often intermediaries are geographically spread but the actual manufacturers are not. There is a risk in having all your suppliers in one location, even when the location offers specialised goods or comparative advantage (producing cheaper goods in a large volume).
A strategy that looks to diversify supply chains, balancing the risks and identifying alternative options will be optimal to establish greater resilience against shocks or market disruption.
Assess your supply chain
Increase your organisation resilience by understanding your supply chains.
Gather information about your suppliers, and their suppliers, working your way upstream all the way to the raw materials, to create a global map of your supply network.
There are many tools to help you consider your supply chains and how they stand on a supply risk / profit impact axis. We have illustrated the Kraljic matrix as one method of classifying and analysing a procurement portfolio. The matrix guides you to plot your products in four item categories;
- Non-critical - These have a low profit impact and are readily available, with minimal risk to supply
- Bottleneck - These items may have a high risk to their supply, but the profit impact is low
- Leverage - Items in this quadrant would have a high profit impact if they were to become disrupted, however they are readily available elsewhere if your usual supply of them were to become disrupted
- Strategic - A strategic item is one where, if supply disruption were to occur, there would be a detrimental impact on your business. Furthermore, the likelihood of a disruption is high, or there is a scarcity in supply
Strategic items are where you should focus your attention initially. The disruption of supply to these items can have a significant impact on your business. Building resilience into the supply chains of these could help mitigate the impact.
Vulnerabilities and risk assessments
Once you have identified the strategic items to your business, consider the potential vulnerabilities in the stages of the supply chain. The following matrix can help you explore the vulnerabilities at each stage of the procurement journey:
Susceptibility of goods to domestic and international events, and subsequent changes to their accessibility.
The amount of a resource / good that can be accessed via international / national suppliers.
The ability to receive goods from international / national suppliers and the time frame required.
Potential for international border disruptions and local disruptions.
Ensure access to the products and consider the longevity and maintenance of the raw materials.
The ability to produce and/or substitute the products to a more resilient supplier.
The ability to store and access a buffer of finished products to protect supply chain resilience.
Take into consideration longevity of products held and the need for batch management.
Ensure access to the products and consider the longevity and maintenance of the final commodity.
The ability to store and access products to ensure supply chain resilience.
Take into consideration lifespan of products held and the need for batch management.
Consider logistics, time frames and labour requirements.
The measures in place to facilitate reverse logistics / regulated disposal and recycling.
Supply chain vulnerability can be defined as the susceptibility to a supply chain disruption or attack, which could be caused by events within or external to the supply chain.
Once you have mapped out your supply chains and identified the various vulnerabilities across them, use the information to classify risks, including the possible timings within which they may materialise or last. Consider a variety of scenarios, what warning indicators there may be and timeframes.
A risk matrix such as the one below will help categorise the impacts to your business and will provide a robust rationale to help you identify the appropriate level of response to the risk. In this matrix we consider the likelihood of a risk occurring on a scale of rare, unlikely, possible, likely and almost certain alongside consequence on a scale of negligible, minor, moderate, major and catastrophic. You could allocate a scale of 1-5 for both the likelihood and the consequence and multiply them together to identify the scale of the risk and help you prioritise action.
Plan to reduce impact
Having mapped out the supply chain and identified the vulnerabilities and risks, it's important to select a series of actions and put a mitigation plan in place. There's no 'one size fits all' model for building resilience in individual supply chains.
Live Risk Assessment
Our supply chain resilience framework highlights five possible courses of action to help identify the right plan for your business. These are not mutually exclusive and often a combination may be required:
- Diversification encourages the identification of alternate sources of supply to create flexibility in the supply chain
- You might consider opportunities for Partnerships and collaboration with complementary organisations, identifying common challenges and working together to solve issues
- You may consider it necessary to use Stockpiling and/or create Surge Capacity for components/goods which are vulnerable or at risk
- Another option is Onshoring; you might identify opportunities to expand or procure domestic manufacturing capacity, where necessary
- Demand Management: You could identify whether there are levers that could be used to manage your demand for the product, for example, if there are substitutes or alternatives, innovation and circularity
We recommend listing all possible actions in the first instance. And then prioritising to determine the most effective combination of actions to reduce overall risk given resource, capacity, interdependencies and priorities.
When working through possible actions, consider prioritising the action or combination of actions that require the least intervention to achieve the necessary increase in resilience.
Implementation and review
Once you have put in place a mitigation plan, it is crucial that it is implemented effectively. You should review and revise the plan as your business, and the environment it operates in, evolve.
Specific measures to take include:
- Put in place an implementation timeline for your resilience building actions
- Make the actions SMART (Specific, Measurable, Achievable, Realistic, Timely)
- Ensure the plans have the support of leadership, e.g. presenting and discussing them with your board
- Arrange a regular review that scrutinises the actions and outcomes and ensures the plans advance and adapt to changing circumstances
This is a short guide you can use to ensure the process of building supply chain resilience is maintained.