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Shock-proofing supply chains from the inside out: Steps to implement in the next 3-4 years

This article first appeared in Supply Chain Management Review

By now, you and your team have a grip on the pandemic-related disruptions to your supply chain. But here are the big new questions: What will your supply chain look like in three or four years? How many meetings have you had to start planning for that scenario? 

If those questions produce awkward silence, please read my last column on why COVID-19 must be the kick companies need to reach real resiliency.

Big supply chain disruptions now occur every two or three years, and their impact is increasing. Then there are the labor strikes, the snowstorms, and the hurricanes. Everyone in supply chain today must be a risk manager, able to assess and navigate around the impact of inevitable upsets.

A reflexive response might be to pad inventory all along the supply chain or change the mix of shipping routes. Such moves will still be necessary—but they’ll be nowhere near sufficient.

To properly manage risk—to effectively shock-proof our supply chains—we need bolder moves that go back to the basics of what’s needed to serve customers. At the very least that means rethinking manufacturing—where materials come from, where subassemblies are made.

Far-sighted companies are making moves already. We’re starting to see localizing of supply chains—and definite pullback from single or limited sources. Apple, Nike, and Adidas are among the businesses moving production to Vietnam and Thailand that until recently was concentrated in China.

Plenty has been written elsewhere about risk management. What I want to emphasize here is its impact on the internal workings of supply chain operations. It’s a dynamic, pragmatic approach to shock-proofing that involves much more than actuarial tables.

AGCO, the agricultural equipment manufacturer, works that way. Some years ago, the company moved to a centralized commodity management structure that balances buying synergies with a sharp focus on risk management. Every category manager is responsible for supplier risk management, not just savings.
The company’s risk management software, just one of its many digital tools, visualizes its supply chains across supplier tiers. Anomalies in material flow appear pictorially at factories and supply chain nodes, and the software automatically notifies the respective commodity managers so they can act. The tool helped predict COVID-19-caused shutdown in South Korea several days early, allowing AGCO to accelerate shipments from suppliers there before they had to close temporarily.

Risk management becomes a superpower when enabled by investments in digital technologies and talent. I’m talking about advanced analytics and artificial intelligence to provide early warnings when things are about to go off the rails. Technology is a way to join the dots and make sense of ambiguity, which leads to faster and better decisions, especially when the right team is at the table to make those decisions.

Shanton Wilcox is the U.S. manufacturing lead at PA Consulting

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Shanton Wilcox

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Fredrik Johansson

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CV Ramachandran

CV Ramachandran