Over the last decade, supply chains have experienced a sharp increase in risk. A major factor is the increased reliance by companies on offshore manufacturing, especially in China. At the same time, executives have sought to control costs through “lean” strategies that require low levels of resting inventory. Combined with the geographical concentration of manufacturing in a single region, that has made supply chains more vulnerable than ever to disruption.
The coronavirus pandemic has only served to heightened the built-in risk of modern-day supply chains. In its wake, companies need to strike the right balance between efficiency and resilience. They should subject their supply chains to stress testing in order to discover hidden weakness, then take correction action before the next crisis occurs. Such efforts, drawing on the kind of stress tests that were required of banks following the recession of 2008, should constitute the heart of next-generation supply chains.
A deep dive into the fundamentals of a particular supply chain can yield surprising discoveries. Companies might assume that their biggest vulnerability lies a with primary supplier, only to learn that the highest risk comes from a small supplier of a critical component that costs 10 cents.
Technology has an important role to play in strengthening supply chains, in the form of such innovations as analytics, artificial intelligence, and machine learning. But they alone won’t shore up vulnerabilities and inefficiencies. Companies must rethinking their strategies and redesign supply chains so that they’re able to source product from multiple locations, depending on where a disruption occurs. One key lies in supply-chain mapping, without which companies can’t devise workable recovery plans.