How to Avoid Business Disruption with Supply Chain Resilience
From natural disasters to intentional disruptions, there are myriad events that threaten to throw your supply chain off track.
While such business disruptions might be inevitable, they don’t have to usurp your operations, weaken your brand reputation, or harm your vendor relationships. It’s possible to fortify your organization against these risks, and the solution isn’t a magic formula or special trade secret. Instead, the key to working through such obstacles and even using them to your competitive advantage boils down to one concept: supply chain resilience.
What does a resilient supply chain look like? What role do vendors play? How can you transform yours to make it as robust as possible?
Why Do Companies Struggle with Supply Chain Resilience?
Think you’re alone in your concerns over supply chain stability? The issue is more widespread than you might think.
According to Deloitte’s 2017 global extended enterprise risk management survey, 74% of surveyed organizations have faced a disruptive event with third parties in the last three years. Moreover, at least one in five organizations have experienced significant consequences as a result of a complete third-party failure or a supply chain incident.
With so much technological innovation at our fingertips, why are such events still derailing otherwise sturdy enterprises?
The answer is simple: As globalization and digitization have expanded and improved business landscape, they’ve also added an extra layer of complexity to it.
Now, the average supply chain is more intricate and distributed than ever before. Borderless, interconnected operations impede visibility into day-to-day activities, leading to a loss of control and weakened infrastructure. Besides, supplier lists are growing exponentially, making management and coordination efforts a challenge.
While there are specific software platforms that can streamline your supply chain efforts, many companies have yet to invest in these solutions. At the same time, they’re failing to establish and test business continuity plans that could help them identify and respond to potential supply chain threats and ensure their critical suppliers are ready, too.
The Importance of Vendor Resilience
Supply chain resilience requires optimization along all touchpoints of the supplier-to-shopper route, with a particular focus on vendor resilience. Research shows that 52% of organizations reported supply chain disruptions among their Tier-1 suppliers in 2018, though only 30% consider the full extent of their supply chain to figure out where an initial disruption occurred.
It’s worth taking the time to perform this investigation, ensuring that your vendors are as fortified against business continuity risks as your organization is. The more you rely on external parties to provide the critical services you require, the more important it is to ensure that the third parties you interface with have resiliency and recovery capabilities in place.
Let’s explore some of the benefits of prioritizing this step.
- Improves Competitive Advantage
When you take the time to build a resilient organization, you’re essentially fortifying your enterprise against all types of disruption. As your supply chain strengthens, so does your competitive advantage.
Competitors with weaker, less-resilient supply chains might buckle under the pressure of unforeseen circumstances, especially those that cause a workplace shortage. On the other hand, you’ll be able to proactively monitor market conditions to ensure a strong and swift reaction, placing your company ahead.
- Increases Your Project Capacity
When you know that your vendors are resilient, you’re able to take on more projects confidently. You can do so knowing that even if an adverse event affects their capabilities, they have the fortification in place to deliver on expectations without delay.
This can help build your bottom line, improve your brand recognition, and enhance your global reach.
- Reduces the Risk of Downtime
If there’s an issue at any point along your supply chain, it could affect your entire operations. In some cases, this could mean costly and resource-depleting downtime.
The price of such a lag? Research shows that downtime costs businesses more than $10,000 per hour, with most organizations requiring more than 60 minutes to bounce back from a setback. A resilient supply chain can help you adapt to changing conditions and overcome them quickly, helping your teams get back on the job as soon as possible.
Risks of Relying on a Sole Supplier
One of the ways to improve your overall supply chain resilience? Expand your network of key suppliers. Why? If you only rely on a select group of suppliers, you’re more susceptible to a business disruption if any of them experiences a failure. The smaller your circle, the more catastrophic the outcome could be.
To remedy this, you can strengthen and deepen those relationships, maintaining a close eye on each to detect any potential issues before they arise. Another way you can improve your resiliency is to simply widen this circle and add more suppliers into your network.
As your group grows, you aren’t required to maintain such close relationships with each trading partner. However, shallow relationships can mean being less informed about potential supply problems. In the end, both scenarios (a small group of close-knit suppliers vs. a broad group of arm’s length suppliers) can work. Your overall procurement strategy will guide which one is right for your organization.
Whichever approach you take, it’s essential to expand past a single supplier. Putting all your eggs in one basket could set your company up for massive failure if that supplier is rendered inoperable due to a disruptive event.
Real-Life Examples of Sole-Supplier Supply Chain Disruptions
Consider the case of Land Rover.
The British automobile manufacturer almost went under in 2001. The sole provider of chassis frames for its “Discovery” model, UPF-Thompson, went bankrupt that year. Caught off-guard, Land Rover had to assume some of UPF-Thompson’s debt to ensure that it could still receive its necessary chassis supplies.
Fifteen years later, a similar situation happened at Airbus.
The Airbus A350 program experienced a significant setback in 2016 due to the delays and inefficiencies of the main seats and cabins supplier, Zodiac. While the plan was to make 80 Airbus deliveries by the end of the year, only 13 made it out in the first three months.
By 2017, those issues and bottlenecks had eased, but it would be two more years before Airbus was able to bring production levels back up, highlighting the high cost of supply chain disruption.
Best Practices for a Resilient Supply Chain
Now that we’ve covered the importance of building a resilient supply chain, how can you take steps to strengthen yours as soon as possible? Let’s take a look at a few key steps to take.
Regularly Assess Your Suppliers
You won’t know how resilient your suppliers are unless you ask.
Tim Mathews, D. Sc., MBA, MBCI, recognizes the following necessary steps in determining how critical a vendor is to your business.
If you choose to do a survey, distribute it to your group to discern their level of preparedness. A few of the questions to ask include:
- Do you have documented recovery plans in place for the goods and services you provide to us?
- Have you considered different types of failures and disruptions that could affect your operations? If so, what is your expected recovery time?
- Do you have a business continuity plan in place? If so, who is responsible for executing, revising, testing, and planning it?
- When is the last time you tested and updated your business continuity plan?
- How would you notify us if a critical incident or business disruption occurred? What would the timeframe be?
- Where will your employees work if a critical incident disrupts your workplace?
- Do you have backup facilities in the event of a disaster, such as a fire? If so, can they work in the same capacity as your primary facilities? If not, what is the capability percentage?
These are only a few questions to include in your survey. Consider your relationship with each supplier and the impact that their disruption would have on your capability to continue your business. Then, add more questions as necessary.
You can use the answers you receive to gauge whether or not a given supplier is reliable.
Investigate Suppliers’ BCDR Strategy and ISO 22301 Compliance
Another way to benchmark your suppliers is to examine their actual Business Continuity and Data Recovery (BCDR) strategy. Currently, 72% of suppliers routinely ask their suppliers if they have business continuity arrangements in place.
When you ask, don’t just settle for a simple “yes” or “no.”
To make sure it’s up to par, you can check the plan against ISO 22301. This standard mandates that organizations must a documented management system in place that explains the steps it will take if a disruptive incident arises. Specifically, they must explain how the plan will be:
The final result should be a BCDR strategy that protects each supplier against such incidents. It should also reduce the likelihood of their occurrence and detail how they will prepare for, respond to, and recover from any that occur.
Create a simple compliance checklist and review each supplier’s BCDR approach against the requirements. If you notice a low score, you can request to follow-up in person.
You can communicate this by explaining that you’re concerned with their strategy and, as they’re one of your critical suppliers, you’d like to observe one of their test exercises. This way, you can get a firsthand look at their BCDR approach and how it operates.
Ace Supply Chain Resilience, One Link at a Time
A resilient and successful business doesn’t get that way on its own.
Rather, it requires that every vendor along the supply chain be equally resilient and adaptive to change. This way, if a surprise setback occurs, a business can continue as usual without sacrificing quality or production. A detailed BCDR strategy is at the core of this readiness, helping to identify exact procedures to take to reduce vulnerabilities.
Need help outlining your roadmap to supply chain resilience?
We’ve spent three decades perfecting this process, and we know how to apply it to your specific business needs. We’ll show you the specific ways your company can plan, train, test, alert, and recover in the event of a disruptive incident.
Contact us today to learn more, and let’s take this next step together.