For start let us define what does Supply Chain Resilience mean?
Supply chain resilience is the supply chain’s ability to be prepared for unexpected risk events, responding and recovering quickly to potential disruptions to return to its original situation or grow by moving to a new, more desirable state in order to increase customer service, market share and financial performance.
Recent happenings in the world have shown us how our industry is fragile to changes and how easy production can be stopped due to lack of supply.
This has shown us that we made the supply chain to fragile for our own good. Even though most of the deliveries from Asia have been disrupted, trade within Europe has been moving and reaching factories and end users.
So it seems that big distances, complicated purchasing process and time it took to adopt to the new situation made it impossible for the factories to manage production. So in the end distance and lack of choice was the culprit
Companies are now looking to make the supply chain more resilient, meaning that changes and unexpected situations will be possible to manage with minimal impact to the production.
What can we do to make the supply chain more resilient?
Inventory buffers, multi-sourcing , manufacturing network diversification, nearshoring ,product or plant optimization and ecosystem partnerships
- Strategy No. 1: Inventory and capacity buffers
- Buffer capacity is the most straightforward way to enhance resilience, whether in the form of underutilized production facilities or inventory in excess of safety stock requirements. The challenge is that buffers are expensive, and supply chain leaders may have a hard time justifying them to their investors and accounting management. You may also suffer from the lack of warehouse space in the process.
- In conclusion simple but not very efficient strategy.
Strategy No. 2: Manufacturing network diversification, multi-sourcing
- To craft a multi-sourcing strategy, supply chain leaders must know their supplier networks in detail and be able to categorize suppliers not just by spend, but also by revenue impact if a disruptive event occurs
- Disruptions to supply chain operations have intensified in the past few years with trade wars and anti dumping taxes taking place. This means that the cost of retaining multiple supply locations must be seen more as a cost of doing business, rather than an inefficiency.
- Diversification can be achieved by awarding business to additional suppliers or working with an existing single- or sole-source supplier that is able to produce out of several locations.
- Strategy No. 3: Nearshoring
- Beyond multi-sourcing, some companies want to reduce geographic dependence in their global networks and shorten cycle times for finished products. Regional or local supply chains can be more expensive, but they allow for more control over inventory and move the product closer to the end consumer.
- In case you need change or fast delivery the time it takes the goods to travel can be shortened from 45 days to 5 days only meaning that you save 40 days easily.
- Secondly easier and faster development of new projects and phases. Implementation of standards is easier because both supplier and assembly company will know what is needed to reach local standards and law requirements.
- Third, claims and service is done in a short period of time meaning high end user satisfaction
Strategy No. 4: Product or plant harmonization
-The use of common components across a variety of models in the automotive industry is one well-established example of such harmonization.
-Standardizing components across multiple products, particularly those that are not visible or important to the customer, is another form of harmonization. This simplifies sourcing policies and creates opportunities to place higher volumes among multiple suppliers, which in turn enhances resiliency.
Strategy No. 5: Ecosystem partnerships
-This means we must have strong relationships with contract manufacturers which is vital in diversifying production and distribution to different countries. Two way communication must be established and mutual support and product development must be done in a partnership style atmosphere.
CONCLUSION
In conclusion what is important is that we must build a network of partners on our own market that will supply a good part of our production. If we only assign 10% of our order to these suppliers and disruptive event occurs our production will still not be resilient and will have to stop.
As we all know factories can increase their capacity up to 30% in a short period of time, not more. So if a supplier increases your 10% by 30% you will have 13% of your production covered ! With 13% your production will stop in a short time.
What must be done is to assign 50-70% of your production to a supplier which enhances your resilience to do the job. So if they increase output by 30% on your 70% the production in your factory will be covered up to 91% ! Meaning that in case of problems in supply chain from Asia we can all adapt and keep the production going. Very important to think about this point and consider this as a insurance policy.
Mutual support, respect and team work is now crucial in order to build this network.
Price mustn’t be the only parameter when looking for a product. What must be looked at is the overall value a particular supplier brings. If the parts producers have a stable sales, demand and growth they will be able to invest in research and development of new better products. Then they will help the bicycle producers have a innovative and competitive product. This will form a loop of partnership and resilient supply chain all over industries.
If you wish to watch me explaining this in a short video, here it is:
