Building Supply Chain Resilience for Competitive Advantage

by Mark Millar on 2012-08-23 01:44:27

Continuing globalization of trade and commerce is resulting in multifaceted business scenarios involving increasingly complex ‘supply chain ecosystems’. Within the context of an ever changing world, this complexity results in larger elements of volatility and vulnerability. Supply chain risk is progressively more prevalent and building resilience will consequently become a key source of competitive advantage.

Such risks typically relate to activities, roles, and participants within the internal environment of the supply chain ecosystem, that cause interruptions to the regular supply chain function and performance.

However, supply chain risk also arises from events which cause problems in the external environment. These disruptions—typically unpredictable—cause massive and immediate damage to the supply chain ecosystem. Such disruptions are usually headline grabbing events, frequently with tragic consequences, for example the natural disasters in Iceland (volcano) Japan (earthquake and tsunami) and Thailand (floods).

This article will focus on the risks within the supply chain ecosystem and outline a four-pillar framework through which to build supply chain resilience.

Supply Chain Risks — Common and Widespread
Supply chains that were once local or regional are now truly global and have become exponentially more complex - today’s supply chains are multi-layered, interconnected ecosystems - with numerous dependencies amongst many participants. Hence our supply chain ecosystems have become more volatile and vulnerable and we therefore need to build resilience for competitive advantage.

How can we identify supply chain risk?
The dictionary definition of Risk is ‘a factor, thing, element, or course involving uncertain danger; a hazard’.  The Supply Chain Risk Leadership Council adopts the definition of risk as “any factor or event that can materially disrupt a supply chain—whether within a single company or spread across multiple companies”. 

Personally, I prefer the succinct definition from Sourcing Innovation Blog: “If you’re counting on it, it’s a risk”!

Bearing this in mind, we can see how risks are common and widespread—not just within our own organisations but within all the other participants throughout the supply chain ecosystem. Examples of such risks would include component shortages, product failure, supplier failure, quality defects, transportation breakdowns, systems malfunction, commodity price fluctuations, operational breakdowns and fraud.

It is also important to note, that one’s perspective on risk depends largely on where one sits within the supply chain ecosystem, and also within which function in the supply chain one is operating.

For example, the finance manager may well have a different perspective on supply chain risk to the logistics manager or the procurement manager. Also, the component supplier may well have a different perspective on supply chain risk to the high street retailer. Nevertheless, they are all participants and stakeholders in a single supply chain ecosystem, within which risks are prevalent and likely to impact many of the participants.

Developing Resilience within Supply Chain Ecosystems
The four-pillared framework to develop resilience within the supply chain ecosystem encompasses the key components of Visibility, Collaboration, Flexibility and Speed.

These pillars provide the ‘sense-and-response’ mechanisms that underpin your preparedness to manage supply chain risk.

In order to sense a problem it must be visible. Developing Visibility is a process combining technology and partnership. Technology is at such an advanced stage that we can see and measure virtually every aspect of the supply chain. To be used effectively however, the available technology needs to be shared with openness and trust amongst partners up and down the supply chain. Visibility enables companies to have an early warning system that alerts relevant participants when events are deviating from the plan.

As supply chain ecosystems become increasingly complex, collaboration becomes more important. Collaboration is the open and cooperative sharing of information on a need-to-know basis with constituent partners throughout the supply chain ecosystem - for the overall efficiency and performance of the supply chain, without compromising proprietary data.

Flexibility is another pillar in the framework of building supply chain resilience. Being flexible means being responsive to change, being adaptable – for example having alternative sources of supply ready to bring on stream at short notice.

Coupled with flexibility is the ‘need-for-speed’ in order to enable rapid-response mechanisms. Trade and commerce now moves at digital speed and therefore a key component of the supply chain resilience framework is to be able to act with Speed - both in decision making and in taking action.

Just as Visibility enables problems to be sensed, it is then essential to act with Speed in assessing, deciding and implementing corrective actions. One method to support speed in decision and action is to match responsibility, authority and accountability at the same level within the organisation.

Conclusion
As our supply chain ecosystems become more vulnerable, risks become more widespread - adopting this framework incorporating visibility, collaboration, flexibility and speed will help organisations build supply chain resilience, which in turn will drive competitive advantage.

Author
Industry thought leader Mark Millar has been engaged by clients as Speaker, MC, Moderator or Conference Chairman at more than 230 functions in 20 countries and is recognized by the Global Institute of Logistics as “One of the most Progressive People in World Logistics” mark@markmillar.com