The supply chain lessons afforded to us by COVID culminated into one word: resilience, said so often it’s almost lost its meaning. Although the difference between organisational, supply chain, or even supplier resilience may be semantics to some and ambiguous to others— when looking to move from insight to action, something most have yet to do, results are found in granularity.
As Suketu Ghandi, Kearney’s Global Leader in Digital Supply Chain and Plan, has said, “The fundamental equations of being a CPO or running a supply chain have not changed. The math is still the same, but the granularity has changed.”
Although the ultimate goal is to be resilient in all areas, whether under your own roof or across your entire supply chain and, of course, one impacts the other, focusing on ‘supplier resilience’ ultimately gives you the biggest ‘bang for your buck’; which makes it a great place to start.
Now, let’s back up for just a second and remove some of the ambiguities that plague us.
What exactly is Supplier Resilience?
Supplier resilience is the ability to thwart and withstand the many blows and supply chain disruptions that stem from your supplier base and impact your organisation’s ability to meet its objectives and service its customers as promised— on time, at the right quality, at the agreed-upon price— and at the expected margins (or hopefully at least close to).
It is said that building resilience ‘future proofs’ your organisation. Although I would use that term very lightly, it does require you to act dynamically, quickly identifying, reacting to and recovering from disruptive events. Most importantly, however, building resilience is about changing your game stance from reactive to proactive, leveraging real-time data and insights to mitigate risks before they balloon into disruptive events.
Establishing a Supplier Resilience Plan
The tricky part about building supplier resilience, however, is it’s not about preparing for the next COVID or even the next black swan; it’s about mitigating the plethora of seemingly small but highly impactful daily threats to your continuity of business, service levels, profits and brand reputation that lay within your supplier base.
Establishing a resilience plan should include:
- Understanding your supply chain
- Setting risk tolerances
- Identifying risks and opportunities
- Evaluating potential impacts
- Implementing risk mitigation tactics
- Establishing contingency plans
- Ongoing monitoring, governance and collaboration
The truth is, however, that building resilience, or its less trendy twin, risk management, can be a herculean resource-draining task.
This is why, until now, other than the largest of companies with the budget and human resources for formal Enterprise Risk Management (ERM) procedures, few bothered to even try. Risk management remained a mainly reactive, intuitive and highly manual task, built through experience and hard-learned lessons that come at great cost.
In 2021, however, with a legion of new technologies and platforms at our disposal, most of which play nicely together, supplier resilience and risk management is suddenly a whole new ballgame. Yet, despite technology now empowering teams to shift from reactive to proactive, and what seems to be an almost general consensus for the need for increased resilience, few have yet to take action.
According to the Tealbook Survey “On Solid Ground: Building the Data Foundation for Agile Procurement”, supply chains are at a “breaking point”. However, 73% of those surveyed have not yet made the necessary improvements to future-proof supply chains.
Why, you ask?
The Imperativeness of Supply Chain Mapping
Firstly, what were once linear ‘supply chains’ are now interdependent global supply networks. Today’s organisations may have hundreds if not thousands of first-tier suppliers and given the often poor visibility beyond tier one, who knows how many nth tier suppliers, all of who have the potential to disrupt planning. This brings great complexity to the first and most critical step of building resilience, identifying vulnerability points.
For many, gaining a more thorough understanding of your supplier base is a critical first step. Where are your suppliers located? Are they family owned or publicly traded? Who are they owned by, strategically aligned with or do they have subsidiaries? What does their supply chain look like and how do they manage it?
Therefore, in order to suss out where risks lie, you must first get the lay of the land- a.k.a, map your supply chain. This is critical for a few reasons.
- No risk stands alone. Therefore, risks must be evaluated in tandem.
- Many areas of risk are impacted by geographical location.
- Very few companies have visibility on the entirety of even their first-tier supplier base. Identifying where your blind spots are is critical.
Essentially, your supply chain map works as your resilience control centre, allowing you to gain the perspective needed to more accurately identify and evaluate risks while continuing to push for increased supply chain visibility.
Navigating the Many Faces of Supplier Risk
Bringing even further complexity is the many different areas risk can be found. Each of these areas come with their own subset of risks and ways they may impact your organisation.
- Financial stability
- Legal, ownership and control
- Regulatory and compliance
- Capacity, quality and performance
- ESG and sustainability
- Technology and cyber
- Markets and prices
Building Supplier Resilience
Let’s face facts, not all risk can be mitigated, and there is no real “future-proofing”. The goal, however, should be to shield your business from its “greatest” threats. In order to do this and ensure you set your priorities wisely, clarity on overreaching company objectives, strategy and values is imperative. What exactly do I mean by that? Let’s walk it through.
Your company faces operational, financial, reputational and strategic risks. All of which you would like to combat against, only some of which you actually will. Resilience initiatives and action plans should be prioritised according to what’s most important to your business.
You may have a handful of customers that represent 80% of your sales or new clients that represent your strategic growth plans. You’ll want to focus on the suppliers that support that business. Customer-facing brands, most especially in certain industries, such as apparel, would have higher reputational risk, therefore gaining full supply chain visibility and transparency may be first-order. Companies offshoring critical supplies from politically volatile areas where there is the threat of margin collapse due to tariffs are likely to prioritise sourcing nearshore alternatives as a mitigation tactic. And lastly, highly regulated industries will want to ensure full and complete compliance across their supply chains and implement robust supplier onboarding and governance procedures.
Importantly, risk mitigation requires resources, both human and monetary. Whether you’re looking to increase safety stocks, procure the right tools, or source domestic supply that comes at a higher cost, hence the critical need to ensure alignment of values across the C-Suite. Yes, resilience is likely to save you money in the long run, but it may mean looking at things through a longer or perhaps just wider lens.
When looking to move from insight to action, we must avoid being nebulous.
Applying Technology for Supplier Resilience
Although threats to resilience and expectations have increased massively in recent times, this presents a massive opportunity for procurement teams. Top teams are starting to use lightweight SaaS technology to take a strategic foothold in their businesses - becoming more proactive, knocking off priorities, and triggering a host of benefits.
Although the goal may be resilience, the outcomes can be far greater. As well as reducing risk, supplier insights can be leveraged to establish a better negotiating position, more effective sourcing, identifying opportunities for improvements and cost savings, and the ability to meet the myriad of regulations your company is liable for— ultimately, better serving your customers, and fuelling growth.
Although resilience isn’t something that is achieved in one go and is an iterative process that builds with time and consistency (think Kaizen), there are lightweight SaaS solutions that can be up and running in just a few hours. The right solutions should allow you to leapfrog, ticking off a number of your most pressing requirements and delivering value almost immediately.
For instance, when it comes to regulatory compliance and governance, practices relied on manual validation of documentation and yearly reviews and audits. Today, all can be monitored in real-time, with set risk tolerances and alerts that go right to your email or onto your dashboard and trigger action plans, reducing the time between insight and action and thereby reducing impacts and building resilience.
Same goes for your supplier's financial stability. Post-covid supplier stability remains of top concern. Contingent keeps track of your suppliers financial stability and will alert you as you prefer, whether it be by email, a dashboard alert or an integrated alert via API. This alert would then trigger your action plan. Because, again, shortening time to action is exactly how resilience is built.
Today’s platforms can also help you with:
- Supply chain mapping
- What-if scenario testing
- Supplier capacity monitoring
- Effective sourcing
- Real-time visibility
- Reviewing all key risk Indicators (KRI’s) and metrics
- Driving cost savings. Leverage supplier insights for stronger negotiating power.
Resilience isn’t a once and done task, it requires ongoing monitoring and governance.
Critically, the right tools will effectively assist in removing the silos that once plagued supply chain communication and information sharing, allowing for collaborative efforts and improved governance between every node in the supply chain. Thereby providing the framework for improvement initiatives, so you can identify opportunities for better ways of doing things, whether you’re looking for cost savings, innovation, sustainability or all of the above.
Setting a digital strategy can, admittedly, be overwhelming. But as with risk management and resilience building, it’s about ensuring strategic alignment with your company's key priorities and objectives. In the end, it all comes down to one question.
What is the success of your business Contingent on?