A more resilient supply chain? You no longer have a choice
September 09, 2022
September 09, 2022
How confident are you about the resilience of your supply chain? And to what extent has that confidence been shaken by escalated disruption over the past few years – from the pandemic to Ukraine, and from mounting tensions with China to the impacts of climate change?
If your answer to the second question is not at all, you can take a bow. But there can’t be many companies that haven’t experienced at least some supply chain disruption in today’s unpredictable environment.
Surety of supply is a hot topic for just about every business right now, with organizations, industries, and entire economies continuing to feel the impacts of disrupted logistics, rising freight and fuel costs and shortages of essential materials – from wheat and barley, to resins, microchips, steel, and more—which are creating supply issues worldwide.
It’s no surprise, then, that supply chain resilience is top of the agenda for governments as well as companies. However, the pandemic, and then the war in Ukraine, exposed weaknesses which are yet to be solved. Back in February 2020, for example, over two-thirds of companies surveyed said they didn’t have a business operations contingency plan in case the outbreak lasted longer than a few weeks.
Unfortunately, there’s no simple “one and done” fix here. Modern supply chains have evolved into highly complex global systems. They have multiple interdependent components and hidden vulnerabilities. They therefore need a multi-layered approach that addresses resilience over three different time horizons: the short term (tactical), the mid-term (operational), and the long term (strategic).
1. Short-term focus: Understand your strengths and weaknesses
The immediate priority is to understand where your current supply chain strengths and vulnerabilities lie. After all, you can’t fix problems you don’t understand… or even know about. The good news is there are two relatively simple tools that can help here.
The first is to run what Accenture calls a resilience diagnostic. By speaking with key people in the organization—demand/supply planning, manufacturing, fulfilment, warehousing, network planning, and so on—you can evaluate practices and identify “low resilience” areas to prioritize. We recently ran this exercise for a global client, and it was an extremely valuable way of identifying which strategic levers it could pull to improve its resilience.
The second tool is a resilience stress test. Based on research conducted by Accenture and MIT, it quantifies an organization’s resilience and simulates how the supply chain would respond in a wide range of conditions. This can help companies understand not only their risk exposure, but also how long it would take them to recover from disruption, and how performance would be affected.
The stress test is possible thanks to a key innovation. It uses a digital twin—a real-time digital model—of an organization’s unique supply chain to run a range of different disruption simulations. That might include, for example, spikes/drops in demand, sudden supplier/facility shutdowns, disruption at a key transport hub, raw materials scarcity, and so on.
2. Mid-term focus: Test and iterate new resilience capabilities
With strengths and weaknesses defined, you can move on to testing and implementing more resilient capabilities. Here, again, the digital twin is key. It can deliver significant benefits in areas like inventory management, network design and process flow.
Direct savings in cost to serve
Reduction in operating costs
Reduction in transport costs
First, let’s consider inventory. Using data science, it’s now possible to evaluate material flows and inventory positions to identify distinct supply chain segments that map back to unique customer service level requirements. The organization can then tailor its approach for each segment, increasing the resilience and performance of the overall supply chain. That includes using the digital twin to optimize inventory at both the individual location level (single echelon) and the network as a whole (multi-echelon).
Toyota is an interesting example of this kind of thinking. Following the Fukushima disaster, the company optimized its inventory of essential components like chips, helping it better manage the pandemic.
A digital twin can also help optimize the network. By modelling transportation and fulfilment costs, customer service levels, and carbon emissions in different scenarios, the organization can determine optimal flow paths for each supply chain segment. It can also then identify disruption mitigation strategies in each case (redundancy, relocation, vertical integration, and so on).
For example, one home appliance manufacturer used a digital twin to identify distribution redundancies. Combined with advanced supply chain segmentation, this helped it meet its target of one-day delivery for 90 percent of orders.
Then, there’s the impact on process optimization. Digital twins can help optimize overly complex, inefficient, and costly processes that waste resources, increase risk exposure and lead to missed business opportunities.
By analyzing inbound supply flows, for example, one North America based aerospace manufacturer was able to identify the cause of degrading delivery performance among its suppliers. That included a lack of supplier risk categorization, exceptions too close to delivery dates, and various other causal factors that could be addressed to improve performance.
3. Long-term focus: Build end-to-end capabilities
The ultimate goal should be to build on the above capabilities to create a data-driven operating model that brings together “intelligent” technologies, data, analytics and supply chain talent. That will provide real-time, actionable insights for not only responding quickly to disruption, but predicting and preventing it before it happens.
In doing so, the key is to understand that resilience does not have a single solution. Fit-for-purpose capabilities are needed across the end-to-end network—from sourcing materials all the way through to last mile delivery.
We strongly believe that companies must build on their response to disruption and continue to increase the resilience of their supply chains. A multi-layered, analytics-driven approach—one that includes a tactical, operational, and strategic focus—will be critical in doing so effectively.
The fact is, in an increasingly complex and uncertain world, designing for resilience is no longer optional. It’s vital to the future success—indeed the future viability—of every company.