Covid-19 seriously disrupted supply chains throughout industry worldwide. Scott Philbrook, Managing Director RS Components Australia, explains today’s necessity for supply chain resilience and continuity.
The Institute of Supply Management reported that in March, at the start of the pandemic, 75% of companies suffered supply chain disruptions due to transport restrictions. Almost half the companies surveyed had no contingency plan for supply chain disruption leading back to China. Eleven months on, many companies are suffering from the consequences of the disruption. McKinsey estimates around $5 trillion in losses due to the supply chain shocks that have occurred as a result of the COVID-19 pandemic. We have all seen extended lead times, rationing and restrictions due to logistics issues causing upstream supply chain disruption, production lockdowns and manpower difficulties leading to reduced output.
The pandemic has shown that global supply chains can be fragile, demonstrating the need for resilience. Consequently, the priorities of many organisations are changing fast. Companies, especially in the high-tech sector, have to date been largely focused on reducing procurement and production costs through techniques such as just-in-time and lean manufacturing. The challenge now is to balance building resiliency into the supply chain, without compromising efficiency or adding excessive cost, and boards throughout Australia are seeking to implement change that will both guide them through present business circumstances, as well as future proof their supply chains.
It is crucial that a change in strategy comes from the top of the organisation. The benefits of supply chain resilience may not be so easily measured as revenue or market share growth, productivity gain or profitability. But the cost of doing nothing is likely to be considerably higher than the investment needed to ensure the business can withstand unpredictable circumstances.
Key elements of a resilience strategy include risk assessment of all aspects of the operation; mitigating the most obvious weak points; contingency planning; communication and collaboration with suppliers and customers; and a digital infrastructure to support all aspects of the business.
Companies should undertake a mapping process to identify suppliers that may be susceptible to high risk events, which may be due to their location, financial strength or lack of recovery capability, among other factors. Building strong two-way partnerships with customers and suppliers, based on trust and understanding, can help all parties in times of crisis to react quickly and effectively. Timely detection of events that might lead to disruption is important too, so that contingency plans can be activated swiftly.
Companies may also have to change their design criteria and design for resilience, albeit adding yet another constraint to the already complex design task. The use of design platforms and harmonising or standardisation of components across product lines are already techniques companies are using to keep costs down and reduce time to market, but these can work for building in resiliency too.
Inventory and capacity buffers are also going to provide some business continuity in the face of major disruption, but this can be expensive. Working with strategic suppliers and contract manufacturers might provide some relief.
All aspects of a strategy to build resilience into, not only the supply chain, but the business as a whole, are dependent on a company’s digital infrastructure. The better it is, the better able a firm can react. Many have been in the process of increasing digitalisation, and now is not the time to stop that process. Support for an increased number of remote-working employees, which is unlikely to fall back to pre-pandemic levels, requires robust and efficient digital networking systems and communications tools.
From online ordering, through manufacturing/process automation, to analysis of big data and the use of AI to help predict trends, digitalisation has become a critical element in any organisation. It can help companies make better decisions in a timely manner. It gives them more visibility into the operation and allows them to be more agile and react faster. For firms on the path to digitalisation: start small and keep it simple, is the current advice.
Digitalisation can help to improve efficiencies within the supply chain in a number of ways, with digital twin systems just one example of this. Digital twin systems are able to find alternative routes, production methods, and suppliers for a supply chain, with the highly accurate plans able to be implemented almost immediately in the case of any disruption. AI technologies are also able to provide managers with deeper operational insights and accurate forecasts, by gathering and analysing current and historical data from a range of sources.
COVID-19 has emphasised the critical importance of resilience for businesses around the world. However, technology, when implemented effectively, can aid businesses in anticipating problems in their supply chain and help them to react quickly to minimise disruption – especially when stages of the chain are spread across the globe. As a result, there has been significant demand for companies offering these services.
RS Components have been working closely for some time with our suppliers and our logistics people on building strategic partnerships. From the outset of the pandemic, we extended negotiations, not only to help ensure their business continuity but also in order to maintain shipments to us. Our rapid response and forward planning helped us maintain continuity of supply, particularly to customers in critical sectors such as healthcare, utilities and food.
Clearly, it is not practical to have large stocks of all items at all DCs. We have always aimed to keep good levels of inventory of top-selling items in all appropriate locations, close to the customers. This time, we were able to predict, to some extent, products that might become in short supply, knowing which supplier factories were shut down, or experiencing reduced output and anticipating transportation problems. Certainly, we encountered some difficulties, but we suffered far less disruption than many.
Another major factor in our favour is that we offer more than 500,000 products from 2,500 suppliers globally, our expert teams are often able to find alternative products. Close contact with suppliers means we know if a single-source product can be supplied from a different geographic location.
Supply chain continuity and resilience has become a critical issue as industries have had to adapt. Risk assessment, understanding the abilities and limitations of suppliers, and increased digitalisation has become paramount towards being able to survive future high-risk disruptive events.