A supply chain is only as strong as its weakest link

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Supply Chain Risk Management - It sounds like a compilation of business buzzwords, but it’s now more important than ever. Is that really true? No, it has always been important, however 2020 was the year that showed us once again why that is the case. Unlike other supply chain risks, COVID-19 brought these issues into forefront of the minds of practitioners and the general public alike. From consumer products like toilet paper and masks to commercial goods like shipping containers and semiconductors, many global supply chains (GSC) have been disrupted.

First of all, steps like closing factories to keep the virus at bay were necessary until more information was available on how to deal with the situation. And understandably the health care sector takes priority when it comes to supply. The damage caused by losing workers in a supply chain is much more severe than not getting your resources on time. However, it is important to keep in mind that many need to work to assure their livelihood. All these factors show how sensitive this topic is, but nevertheless the pandemic revealed how vulnerable many supply chains are.

For example, the semiconductor market has been on a rollercoaster, the pandemic curbed production while simultaneously boosting demand for electronics like laptops an PCs, because suddenly many people had to set up an office space at home. Now manufacturers can hardly satisfy the need for electronic parts, causing a highly volatile supply chain for everybody involved. While the urgent task at hand for most companies is to survive this pandemic, once things start going back to normal, an overhaul of the GSCs is urgently needed. The keyword is supply chain resilience.

A study on the impacts of COVID-19 on GSCs suggests that after the crisis companies should revamp their strategies and focus more on relocations and nearshoring. This results in shorter supply chains and less vulnerability in disruptive times. Advantages are lower cost of transportation and shorter delivery times, while also providing more flexibility and shorter delays. With less economic actors involved a supply chain can react quicker and more precise to market changes and disruptions.

Another factor that is difficult to balance is redundancy of stocks. A higher buffer stock can cushion possible disruptions, but it is often expensive to store and the resources may become obsolete after a while. Therefore, it could be beneficial to have a partner who takes care of excess goods and allows access in case they are needed again. After all companies are not the sole actor in their respective industry and a more circular economy helps a better distribution of resources. Cooperation is the foundation of a supply chain and in order to increase its resilience everybody involved works toward a common goal.

On average companies had 44 days to react from the first COVID-19 case in their country until mandatory restrictions were imposed by governments. It is impossible to implement a new supply chain in such a short time, but it is feasible to make small adjustments. To make this work most GSCs need an update and should stop focusing on minimizing costs and instead balance expenses and efficiency with resilience.

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