Strategies for Mitigating Supply Chain Disruption
July 31, 2024
Whether you want to enter the industry as an aspiring student or are seeking to further your supply chain or logistics career, a firm grasp of global supply chain issues and disruption mitigation best practices is essential. Read on to learn more about supply chain disruption and tips for fostering resilience.
Understanding Supply Chain Disruption
From international military conflict to climate change, many factors can directly or indirectly hinder supply chain operations. In recent years, a series of important global events have led to significant and ongoing global supply chain issues.
The Impact of Global Events on Supply Chains
Many earth-shattering events have contributed to global supply chain disruption and vulnerability over the past five years alone. When the COVID-19 pandemic began to spread across the globe in 2019, it brought with it a lasting supply chain crisis fueled by dramatic spikes in demand for critical products and skyrocketing e-commerce activity, among other factors. Subsequent obstacles to unencumbered trade and shipment include the Russian invasion of Ukraine in 2022 and the significant physical disruptions at both the Panama Canal and the Suez Canal in 2024. The impact of these global events on supply chain operations has proven substantial, enduring, and costly.
Identifying Common Causes of Disruption
Beyond industrial accidents, military conflict, and political unrest, cyberattacks pose a significant threat to global supply chain stability. In addition to these entirely human/societal causes of supply chain disruption, natural disasters such as earthquakes, wildfires, and extreme weather events can make it entirely impossible to transport goods from one location to another.
Building a Resilient Supply Chain
According to the Fortune 500 firm Gartner, supply chain disruptions are now a certainty, being constant and unpredictable. The critical question to address is whether your organization is prepared to mitigate the next global supply chain disruption or other supply chain risks that arise.
Strategies for Risk Assessment and Management
To boost supply chain resiliency, Gartner stresses the importance of three strategic categories: visibility, resilience, and agility. Initiatives that focus on visibility can help supply chain professionals identify risks early and react to them accordingly. Initiatives that focus on resilience aid in the development of supply chain systems that resist, absorb, and recover from disruption. Additionally, initiatives that focus on agility focus on rapid response to supply chain disruption to avoid or minimize its negative impacts.
Importance of Flexibility in Supplier Selection
Stressing agility means ensuring flexibility in your choice of suppliers. Beyond seeking out suppliers that draw from a multitude of sources, companies should be prepared to pivot to others when current supplier performance falls below expectations or needs. To learn more about the importance of supply chain diversification, see the “Diversification as a Key Mitigation Strategy” section below.
Leveraging Technology for Supply Chain Continuity
Over the past several decades, digital technology has completely transformed the supply chain sector, dramatically enhancing capabilities to boost resilience by both assessing and managing risk.
The Role of AI and Machine Learning
The Michigan Manufacturing Technology Center (MMTC) recognizes artificial intelligence (AI) as a revolutionary technology reshaping supply chain management. AI applications in this field include predictive inventory analytics and real-time shipment tracking. According to MMTC, AI has the potential to enhance almost every aspect of the supply chain.
Implementing Blockchain for Transparency
In addition to AI, blockchain technology has provided significant strategic advantages in the global supply chain by enhancing transparency among the various companies involved. According to Deloitte, each business in the supply chain network contributes value to a product or service before it reaches the end user. This value exchange is recorded through transactions involving information, goods, services, and finances. A ‘permissioned blockchain’ can record these transactions on a shared, immutable ledger, enabling data capture, validation, and sharing across interconnected companies. This transparency fosters mutual trust and reduces supply chain risk.
Diversification as a Key Mitigation Approach
Supplier diversification up and down the supply chain can be a beneficial strategy for managing the risk of disruption. Although the heart of this strategy involves relying on multiple suppliers rather than one consolidated source, the types and areas of diversification might differ considerably from industry to industry.
Geographic Diversification of Suppliers
Businesses can make their approach to diversification considerably more strategic by specifically considering geographic advantages and drawbacks. For example, adding supply chain links at the local level might cost more upfront but also generate lasting value through increased inventory control. One popular geographic diversification trend to consider is nearshoring, also known as moving production or supply operations to a nearby country rather than remaining with operations farther away. Nearshoring has proven an effective way to both mitigate disruption and shorten shipping cycle duration.
Product Sourcing and Inventory Diversification
If you want to ensure that your business has the products that it needs on hand, multisource supply chain strategies are key. Even if you secure a single supplier that can reliably source a product from several locations, you may want to maintain relationships with one or more second-tier or auxiliary suppliers to work around unforeseen supply chain disruptions that might arise. To maximize your multi-sourcing efforts, you would be wise to investigate inventory diversification opportunities, including using other products or raw materials if they are easier to access and transport.
Strengthening Supplier Relationships
While it is generally a good idea to acquire new suppliers to diversify your supply chain, it is equally advantageous to foster reliable, long-term relationships with your existing suppliers. An organization can save a tremendous amount of hassle and money by establishing and maintaining mutually beneficial partnerships with suppliers that they can trust to deliver high-quality goods on schedule.
Collaboration for Improved Supply Chain Visibility
Supply chain expert Efrata Denny emphasizes the importance of collaboration in supplier relationships, ranking it as the top reason to maintain strong ties with key suppliers. He explains that when suppliers are regarded as partners, the resulting collaboration creates a powerful synergy that drives organizational success.
Establishing Strong Communication Channels
Denny highlights that successful collaboration relies heavily on clear and open communication. He stresses that communication must be ongoing throughout the supply chain, not just during the contract negotiation phase. Regular updates, meetings, and feedback sessions are essential for maintaining alignment, making timely adjustments, and swiftly resolving any issues that occur.
Preparing for the Future of Supply Chains
The only true constant in supply chain management is change. Therefore, savvy supply chain professionals must plan for the industry’s immediate and distant future.
Trends Shaping the Future of Supply Chain Management
As detailed previously, innumerable natural and human-made issues can profoundly influence supply chain operations. Looking to the future, Gartner has identified trends in the following areas shaping the future of supply chain management for both the better and the worse, including trade policy, labor, energy, global health, sociopolitical unrest, and ESG (environmental, social, and governance).
Adapting to Changes in Consumer Demand and Regulation
In an issue brief on supply chain resilience, the White House listed industry transparency and public sector intervention as the two key factors driving global supply chain resilience. Both of these factors involve responding to rapid changes in consumer demand and adhering to evolving industry regulations. Among other things, this means improving access to relevant supply chain data and diversifying supplier sourcing in the many ways outlined in the “Diversification as a Key Mitigation Approach” section above.
Frequently Asked Questions
Anyone with a significant interest in supply chain management is likely to ponder one or more of the following FAQs about responding to global supply chain issues and risk mitigation.
As previously discussed, AI and machine learning are handy tools when it comes to predicting future disruptions in the supply chain. Whether aided by AI or driven by human calculations, statistical analysis models such as the MAPA (Multiple Aggregation Prediction Algorithm) and the ARIMA (Autoregressive Integrated Moving Average).
The supply chain technology consultancy Accenture recommends attending to upstream tier-1 and tier-2 suppliers first and foremost in times of disruption, rethinking short-term sourcing options within current supply network constraints. Then, they can begin to establish a stable supply base by freeing up funds to double down on the most reliable supply chain routes. Throughout the immediate response to any supply chain disruption, Accenture stresses the importance of putting people first. A people-first initiative means that companies should center their risk management efforts around developing improved relationships with partners throughout the supplier and consumer ecosystem.
Beyond AI and blockchain, technology is driving the evolution of supply chain risk mitigation in countless ways. By placing sensors on shipped goods and using intelligent equipment capable of communicating real-time data, the IoT (Internet of Things) can track movement across every link in the supply chain. GPS technology also plays a vital role in modern shipment tracking.
Other forms of digital tech shaping the future of responsible and responsive supply chain management include SCM (Supply Chain Management) and ERP (Enterprise Resource Planning) software to plan and oversee comprehensive logistics operations. Automated robots can boost efficiency and prevent errors in the warehouse, while airborne drones can serve as ideal vehicles for swift and reliable consumer deliveries.
Improve Your Global Supply Chain Strategy
You need a professional command of global supply chain strategy if you want to deliver optimal supply chain resilience. For this reason, among others, a supply chain/logistics industry-focused diploma is quite important. To learn more about what a practical education in the global supply chain can do for you, examine the Global Supply Chain & Logistics Management Diploma at North American Trade Schools (NATS) and enter your contact information in the “Connect with NATS” section for additional details.
