It was the perfect storm.
A once-in-a-lifetime pandemic disrupted the world’s supply chains, keeping stores shuttered and factories padlocked. Shipping containers had no charters and cargo planes flew light.
After 2 years of recurring lockdowns and travel restrictions, the world looked eagerly to the new normal.
But then the war in Ukraine hit—causing another devastating blow to logistics networks. Who would have thought that it would have far-reaching effects on the world’s supply of food, chemicals and energy?
The pandemic was a nasty wake-up call for supply chains, but, just in case the lesson wasn’t learned enough, came war as a bonus.
In this post, we discuss the hidden risks to your supply networks—those lurking threats that could suddenly endanger any business. We’ll also then look at some of the best practices for future-proofing your organization’s ability to provide value to customers.
Hidden Threats To Your Supply Chain
#1 Natural Disasters
On February 6, a 7.8 magnitude earthquake hit the countries of Turkey and Syria, leaving innumerable loss of life.
One might not have personally felt the tremors that day, but businesses are still reeling from the after-effects of this natural disaster that hit on the other side of the world.
Because as the world becomes more interconnected, it also becomes more fragile. Shocks in far-away places can impact businesses everywhere, even those with no seeming connections to the event.
For example, how could a company like Levi’s be affected by the earth moving in Turkey? Well, it so happens that the company has 3 factories in the earthquake zone. But not just Levi’s. With around 500 apparel factories in the area, other fashion retailers like Mango, Hugo Boss and Zara have been hit too. H&M and NorthFace are feeling the pinch as well.
(Turkey is often touted as a China alternative. Investing there is supposed to be a sound move, a way to make one’s supply chain resilient. For example, it happens to be a “nearshoring” strategy for the German company Hugo Boss. It did not want to totally rely on China for production. So building production facilities in Turkey should have made its supply chain more robust.)
To make matters worse, Turkey plays a significant role in the supply of automotive parts, electronic components, steel, raw materials and food products. Not to mention, it’s a transit country with key container hubs located in the earthquake zone. And the troubles there have already been felt downstream.
Environmental disasters are often hidden and unpredictable. But what can be predicted is that every time they hit, they cause shortages, delays and increased transportation costs even to businesses a world away.
So, is your business ready for natural disasters, even those far from home?
#2 New Regulations and Policies
Brinksmanship, backroom dealings, and compromises.
With the way politics is being played these days, your supply chain can suddenly be saddled with new regulations or lose formerly enjoyed protections.
A change in administration, a swing to the other party, or the need for a few more house votes could result in concessions that throw a monkey wrench into your well-oiled operation. Worst of all, unless you are a big, influential lobby, you might not even see it coming.
For example, a new tariff could make your raw materials more expensive to acquire—suddenly turning your business less competitive. In 2018, the United States imposed tariffs on steel and aluminium imports from several countries, including China.
That signed piece of paper affected not only car and appliance manufacturers, but every business that touched steel.
Since your business lives and breathes under the auspices of the government, you have no recourse but to abide by whatever the politicians, in their desire to secure more votes, end up deciding.
So, is your supply chain robust enough to weather political tides?
#3 Supplier Complexity
Even though you guys have different balance sheets or registration papers, you and your supplier are really in the same boat. Your supplier’s problems are soon going to be your problems. All upstream issues affect those downstream of the value chain.
Your supplier’s issues will affect his ability to deliver on time, sell cheaply or produce quality goods.
Whether his workers are happy or not will also affect you.
If that company’s workers suddenly walk out, guess what, you’re not getting your order.
If that company has poor worker morale, then be ready to receive shoddy craftsmanship, regardless of what was written in the contract.
If that company has poor relationships with their own suppliers, it could ultimately mean delays in your production schedule.
What makes it worse though is that not only do you have very little say in what happens in other companies, you may not even be aware of these underlying issues. They are hidden problems that have a palpable effect.
So, is your business resilient enough to face less-than-ideal realities upstream?
#4 Dark Horses
They say that if you want to win in your space, you should know the different players in it. The problem is, with integration happening everywhere, and with acquisitions and mergers taking place every day, determining your competition becomes an ethereal exercise.
The very boundaries of your industry might even be redrawn in the coming months.
Worse, your industry might suddenly welcome an unlikely entrant: big companies, with capital to burn, in search of profits. These big shots enter a space they are not known for, with the hopes of making a killing. Think of Google entering the wearables market, Amazon going into grocery stores, or Apple into healthcare.
They may use proxies and come in a slightly different name, but nevertheless, they wield the same muscle as the parent company.
These entities could easily corner the market, hold hostage your sources of raw material and leave your business grasping for air.
With dark horses on the ready, is your supply chain solid enough to mount a defence?
These four: natural disasters, new policies, supplier complexity and dark horses, could quickly unravel your best-laid plans.
So how can you mitigate their effects?
We now turn our sights on the things that can strengthen your position. Here are some of the best practices that immunize your supply chain from hidden risks.
How To Protect Your Supply Chain From Hidden Threats
#1 Increase supply chain flexibility.
With countless threats lurking, any one of which can hit at any time, organizations need to be flexible enough to roll with the punches. This may require a profound re-evaluation of its present set-up—including the “just-in-time” inventory management system—which works fine during business-as-usual situations but would cause trouble in times of shocks.
A company looking to develop a contingency plan and increase supply chain flexibility can do the following:
- diversify supplier base
- diversify transportation modes
- maintain a stock of critical components
- “nearshore” or “reshore”
- specify priority status in contracts
- and identify ready substitutes for raw materials
With these in the bag, your business can have elbow room for whatever may come.
#2 Redesign your products
Unneeded complexity increases the fragility of a supply chain. Companies need to look for ways to simplify the business. And an area that can yield excellent gains is product design.
Simplified products release much of the pressure from supply chains. The less a company is forced to rely on the timeliness and discipline of suppliers, for example, the better.
Here are some of the ways a product can be simplified:
- reducing the number of features
- reducing the number of specifications (eg. sizes, colours, patterns)
- reducing the number of components
- looking into modular design (interchangeable components)
- simplifying packaging
With simpler products, you decrease the chances of your supply chain being seriously disrupted by every little thing.
#3 Streamline your processes
Continuing with the theme of simplification, an organization can weed out unneeded complexities in its production process and make operations more efficient and robust to shocks.
A process analysis should identify problem areas and bottlenecks, and mitigate them. Some of the things that can be done include:
- reducing the number of products
- standardizing processes and using models and templates
- minimizing paperwork by going digital
- using “facility layout planning” to minimize unnecessary movement and transport of materials/products
- implementing “facility layout planning” to maximize the use of space
- employing workspace ergonomics to optimize ease of use and productivity
- automating repetitive processes (eg. by purchasing equipment)
With a simpler process, your supply chain need not work so hard.
#4 Leverage available technology
A big part of future-proofing your business is by using technology.
With available tools, you can have end-to-end visibility of the business. You can track the precise location of your shipment and look into its status in real-time (eg. temperature of perishable goods). On the other side of the chain, you can have up-to-the-minute updates on customer demands.
With AI and big data analytics, you have a ready partner in planning, decision-making and execution.
So the race is on for businesses to adopt tech and make their supply chains as efficient and as responsive as possible. Some of the things you can invest in are:
- Enterprise Resource Planning (ERP) systems as a centralized platform to manage various aspects of your operations like inventory, sales, production, and accounting.
- Transportation Management System (TMS) to track shipments, optimize routes, and reduce costs.
- Warehouse Management System (WMS) to manage inventory and improve order fulfilment.
- Customer Relationship Management (CRM) to provide insights into customer behaviour and preferences.
- Radio Frequency Identification (RFID) to track your individual assets in real time.
- Robotic Process Automation (RPA) to automate repetitive digital tasks and increase efficiency.
With these best practices, your supply chain can be ready for what’s up ahead.
But inherent in these moves are the training and upskilling of your people. You have to invest in the requisite skills in order to properly execute these changes. Your people are your competitive advantage. Competitors might invest in the same tech or avail of the same software package, for example, but your true differentiating factor is the people who work alongside the technology.
In the end, after all that’s said and done, the most important aspect of making your supply chain flexible, efficient and robust, is having a highly-competent team empowered to respond to any issues that may arise.
Kinetic Innovative Staffing helps companies, big and small, find top remote talent for their organizations. We understand how important highly-skilled workers are, so we have a rich pool of top digital talent from software developers, network engineers, graphic designers, writers, digital marketers, virtual assistants etc.
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Our customers land the most qualified hires for their searched roles. And for that, they also enjoy 70% savings in labour costs.
If you want to explore this opportunity or have any questions, please do not hesitate to contact us.
Kinetic Innovative Staffing has been providing hundreds of companies in the Asia Pacific, North America, the Middle East, and Europe with professionals working remotely from the Philippines since 2013. Get in touch to know more.