Achieving a continuous supply chain is “an ultimate holy grail need” for companies in the transportation and logistics (T&L) industry, according to Mike Turner, vice president of sales at dynamic freight matching company DFM Data Corp.
Materials should move from supplier to production, and then those products should move from storage to final destination, without interruptions.
But accomplishing that happens rarely, if ever. Why? Because exceptions are always occurring.
Although it may be impossible to achieve a perfectly continuous supply chain, there’s a way to mitigate such exceptions. And that’s by building supply chain resilience.
In this article, I’ll discuss what supply chain resilience is, what it looks like, and how to create it.
What Is Supply Chain Resilience?
Supply chain resilience is “the ability for companies to identify potential challenges and risks in the business and supply chain and always have alternatives to be able to still function,” said Chris Petrocelli, president of xMS Supply Chain Services and an Advisory Board member at the SUNY Maritime College and Oregon State University.
In a nutshell, you become resilient to changes in the supply chain by having backup plans.
Let’s say you’re a third-party logistics (3PL) provider. You provide warehousing, picking and packing, and shipping for your retail clients. But what happens when your preferred carrier calls you and says it’s going out of business tomorrow?
You have hundreds of orders in the backlog that still need to be shipped. And nowadays, customers probably expect to receive their goods within 24 to 48 hours.
Unless you have a backup plan in place, that leaves you scrambling to fulfill your obligations—to clients and to customers. Other carriers you want to work with might be booked or unable to deliver orders within your specified time frame.
But if you’ve built supply chain resilience into your operations—in this case, you have a backup carrier already lined up—then you’re able to pivot and get those orders shipped with minimal or no delay.
“It’s unrealistic to think you’re going to have a B, a C, and a D plan,” Petrocelli said. “But you should at least have an alternative to your current steady state.”
What Does Supply Chain Resilience Look Like?
As we just saw, a company that doesn’t have supply chain resilience is in a bad spot when something changes. So, what does supply chain resilience look like in action?
Petrocelli gave the example of a South China vendor needing to transport goods to the US. The vendor usually uses the airport in Hong Kong. But what happens if that airport shuts down temporarily?
A resilient company will have a backup plan in place to, for example, truck the goods to an airport in Shanghai. It’ll take an extra day, but the company will still be able to ship the goods in a timely manner, Petrocelli said.
“The intent is to get ahead of the curve on these exceptions so that I can do something different,” Turner said. “Now, with the right data points, I can expedite that move, or on the back end, I can proactively let my end company know that this load or this particular piece of inventory is going to be late and to what degree.”
Then, the end company can pivot, too, and adjust for the impact of receiving the shipment later than it planned to.
How to Implement Supply Chain Resilience
When something happens where you can’t get a load out of an origin point, you need to figure out the best alternative to move those goods, Turner said. Is there a supplier in another location that you can call? Is there a secondary transportation provider with available capacity? Should you airfreight the merchandise you were planning to truck?
To avoid making those decisions on the fly, you plan for different scenarios and let staff know what moves they can make.
1. Identify Vulnerabilities and Areas of Risk
The first step in implementing supply chain resilience is to identify areas where your organization is vulnerable to changes in the supply chain. There are a few supply chain vulnerabilities that are common to most companies:
- planning and supplier networks
- T&L systems
- financial resiliency
- product complexity
Each of these areas poses a risk to a company if it hasn’t taken appropriate steps to mitigate possible exceptions. Here are just a few situations that can affect each of these vulnerabilities, according to a 2019 article in Transportation Research Part E: Logistics and Transportation Review:
- Labor strikes or other disruptions to the production of goods can threaten your company’s planning and supplier networks. If a key supplier’s staff goes on strike, that impacts your company’s bottom line.
- Weather conditions can disrupt your T&L systems; for example, a drought in 2012 brought water levels in the Mississippi River so low that companies that relied on barges to transport goods had to significantly lighten loads or find alternative means of shipping.
- Any disruption to your steady state can be costly. Your company needs to be financially resilient enough to withstand exceptions. This includes surviving revenue loss until your company is able to return to standard practices or being able to absorb the added costs of implementing a backup strategy in order to fulfill your obligations.
- If your company’s supplier uses lean manufacturing and the manufacturer is unable to secure a key material because of a shortage or other disruption, that can impact companies with complex products. This was the case in 2011 and 2016 when Toyota, recognized as a leader in popularizing just-in-time manufacturing, had to stop production for a few days after an earthquake in Japan kept suppliers from shipping parts on time.
2. Define Rules of Engagement for Each Exception
Knowing where your organization is vulnerable to supply chain changes is all well and good. But how do you respond to them when the time comes?
“There should be defined rules of engagement in play that were set up with my company and the shipper, for example, or my company and the company with whom I’m doing business,” Turner said. That way, everyone shares an expectation of what levers to pull when certain exceptions occur.
For example, you can mitigate disruptions to planning and supplier networks by implementing multiple sourcing strategies and having those suppliers located in different geographies, according to the Transportation Research article. That way, a disruption that impacts one of your suppliers is unlikely to impact another because they aren’t in the same location.
And sometimes, depending on the circumstance, your rules of engagement for a specific exception is simply that your staff will notify you when it occurs.
“So, once I get notified of this exception, I can make the recovery decision with the team,” Turner said.
The key is to be proactive and transparent, keeping all parties informed as circumstances change and discussing what needs to happen to uphold your obligations to one another.
How to Make Your Organization Resilient to Supply Chain Changes
There are three main challenges to creating supply chain resilience. Let’s take a look at what they are and some solutions to them.
Set Aside Time to Create Backup Plans
One of the primary impediments to supply chain resilience is that staff members aren’t able to divert time to work on it alongside their regular duties, Petrocelli said.
“You can’t stop and say ‘I’m going to spend next week working on that. We will just not run the business,’ ” he said. “That’s always the problem. You have to run the business as you’re trying to do these things.”
And staff members might not respond well if you drop this new task on their desks with no notice. Your staff is dealing with customers, vendors, and T&L providers with urgent needs. So, creating these backup plans falls by the wayside.
The solution is to schedule attention units to work on supply chain resilience, Petrocelli said. These should take place at regular intervals (e.g., quarterly). That way, staff members know when they are expected to work on these backups and can plan their day-to-day around that time accordingly.
Build a Culture That Is Prepared for and Responds to Changes
Another challenge when creating supply chain resilience is that employees may feel threatened when asked to come up with backup plans.
For example, if you run a small organization and only one staff member handles inventory planning, then that’s a problem. What happens when that person calls in sick unexpectedly and, on the same day, your warehouse calls with a disaster?
Sure, someone might try to step into the role to handle the situation, but they don’t know the ins and outs of inventory management.
When you make the backup plan for that type of situation, you want your staff to be involved. But when you ask the person who does inventory planning, “Hey, Terry, what happens when you’re not here tomorrow?” her reply is “What do you mean? I’m always going to be here.”
“It just becomes another real challenge when people feel like they’re being challenged and threatened,” Petrocelli said.
Instead, you need to build a culture where people feel secure in their roles, where you have a mature management team, and where progressive thinking about these backup plans can happen.
If you do that, then when you ask Terry what happens when she’s not here tomorrow, she says, “If I’m not here, Imani will be here. And I’ve cross-trained her and she knows everything.”
Having that mature organizational culture in place will create an environment where staff will be open to building resilience and flexibility to changing circumstances, Petrocelli said.
Increase Transparency and Visibility
The last challenge to creating supply chain resilience is a lack of visibility. In order to increase visibility, you first need to increase transparency within and between organizations.
This is where interoperability or a supply chain control tower come into play. Interoperability and supply chain control towers allow companies to confidentially share data and information in a way that benefits all parties.
“If, say, a railroad could see that a certain number of shipments are converging on an origin point on their network from different directions, perhaps from different customers, then they could plan better for how they’re going to manage their terminal,” said Jack Carbone, a small ocean carrier and equipment trading consultant. “Right now, they don’t really have visibility to plan ahead until it’s on the rail network heading toward them.”
These systems allow companies to get ahead of exceptions, rather than just react to them. If you can anticipate what kinds of exceptions might impact your business, then you can plan for them better. And that’s how you create supply chain resilience.
How to Measure Supply Chain Resilience
Once you’ve created supply chain resilience, you need to be able to measure it.
In order to measure supply chain resilience, you have to define which metrics matter for your business. It could be something as simple as downtime, Petrocelli said.
Here are some other metrics you might measure:
- what percentage of your deliveries were on time
- how accurate your deliveries were
- whether you were able to avoid demurrage fees
- how many customer complaints you got
Once you define primary metrics, then you can get into secondary metrics like maintaining transit time, he said. That allows you to see whether you were able to meet expectations despite, for example, having to reroute a load.
“So, there are ways of putting some metrics in place to at least say, ‘Hey, look, over the last five years, we did OK. We lost a day here and there, but we still were able to maintain and move goods during that period,’ ” Petrocelli said.
Supply Chain Resilience: Putting It All Together
So, supply chain resilience is achieved when a company has backup plans in place that allow it to continue to operate despite changes.
For example, in response to COVID-19, a lot of companies moved merchandise closer to onshore geographies instead of overseas, Turner said. They may not have moved all of their inventory, but they could now have some in Asia, some in Mexico City, and some in Laredo, Texas.
Although this creates more logistical challenges in tracking where inventory is at any given time, it gives you “the flexibility to manage exceptions or expedite goods as needed so that your production schedule keeps moving in the right direction,” Turner said.
Then, at the end of the year, you can evaluate how those backup locations helped you meet your KPIs. Maybe you noticed your shipments from your warehouse in Asia were consistently late because of travel restrictions. So, you arranged to have high-priority shipments sent from your warehouses in Texas or Mexico, allowing you to deliver goods on time.
And with technology like a supply chain control tower in place to let you anticipate exceptions before they occur, you can become even more resilient to supply chain changes.
“These types of backups and unforeseen situations are going to happen, but if there was more visibility between all aspects of international shipping and trade, it could increase the planning horizon time,” Carbone said.
This post was written by Kristin Rawlings. Kristin is a writer, editor, and fierce advocate of the Oxford comma. She has experience working in journalism, academic publishing, and content marketing. Her passion is collaborating with others to share information in a clear, readable way.