The resilience of supply chains has never been more critical. Over the past year, consumer reliance on supply chains was made abundantly clear, yet ongoing trade battles, pressure from tariffs, and the Covid-19 pandemic exposed chronic vulnerabilities in existing systems. Adding fuel to the fire, sudden supply chain disruptions became increasingly common. In fact, given the complexity and interconnectedness of today’s world, businesses can expect to endure a one-month-long supply chain disruption every 3.7 years, according to a 2020 McKinsey analysis.
Current realities are triggering a collective reckoning to reengineer supply chains end-to-end and ensure resilience for the long haul. Flex has found that it is critical to manage the balance between security and costs so supply chains can weather more frequent disruptions. Prioritizing speed and flexibility via digital transformation — while at the same time maintaining structure and system integrity — will also be vital, as will possessing the ability to make effective decisions with less-than-perfect data. Perhaps most importantly, as businesses work to reengineer their supply chains for the post-Covid era, they must not allow amnesia of past disruptions or misaligned incentives to hinder their progress.
Critical pillars for reinforcing production and distribution systems
To realistically achieve the ultimate goal of improved supply chain resilience, businesses must first embed risk mitigation measures throughout the chain from procurement to last-mile delivery. Flex’s resilience dimensions, including visibility into potential reinforcement areas, are continuously strengthened. We’ve seen multiple studies show flexibility, visibility, and collaboration are critical pillars for reinforcing production and distribution systems:
- Flexibility enables businesses to adapt to disruptions with minimal impact. Flexibility can be established by developing multiple alternative suppliers in the event service interruptions affect primary suppliers.
- Visibility allows businesses to anticipate risks in real-time, whether it’s identifying a significant weather event or the environmental, social, and governance (ESG) reputation of a second-tier supplier.
- Collaboration involves businesses sharing information both internally and externally. When there’s strong collaboration between organizations within a supply chain, each player can respond to disruptions faster and more effectively.
3 lenses for identifying, evaluating, and mitigating risk
In addition to establishing flexibility, visibility, and collaboration, businesses seeking greater supply chain resiliency must outline a risk management framework. In doing so, risks can be continuously identified, evaluated, and mitigated through the following three lenses:
- Customers – To fully understand their customers, businesses require an understanding of the risks in the chain. Are there seasonal shortages of critical parts or potential price fluctuations that need to be anticipated?
- Market – Staying apprised of any potential market disruptions — including political, environmental, and any other external threats — is essential. Does a recent geopolitical event stand to bring new trade mandates and incentives?
- Suppliers and partners – An awareness of suppliers and partners is vital. Are some partners less financially stable? Are there emerging risks to quality and timely shipments as a result?
Ensuring accountability with a designated resilience team
Ensuring accountability is a slightly less tactical but equally important supply chain resilience best practice. To effectively diffuse risks and mitigate large-scale disruptions, Flex created a designated resilience team whose core responsibility is to protect all business, partner, and customer assets. Serving as the first line of defense, our resilience team constantly assesses risks and collaborate with planning, procurement, and other departments to optimize operational shifts and decisions that impact product and customer needs. In particular, resilience teams should analyze the key inputs’ risk profiles along product lifecycles from beginning to end.
The future requires iterative resiliency
2021 certainly tested the resilience of global supply chains. Rather than dwelling on past hardships, businesses have an opportunity to view recent challenges as an impetus for supply chain innovation. Instilling greater resilience will be paramount in the post-Covid era, and doing so won’t be possible with a single technique. Instead, businesses must recognize that resilience is a proactive, iterative process that continually incorporates new insights and realities. By fostering greater flexibility, visibility, and collaboration, establishing risk mitigation frameworks, and ensuring clear accountability, businesses’ supply chains will be better equipped for the next inevitable disruption.