The past few years have fundamentally changed the way we think about supply chain management. We can choose to look at recent events as an anomaly that has come and gone, or we can recognize it as a wake-up call that offers important lessons for the future. Smart managers will choose the latter.
Pre-COVID supply chains were highly efficient. Unfortunately, however, they weren’t as resilient as we needed them to be. As entire nations went into lockdown during the COVID pandemic, factory closures and labor shortages reduced the supply of many essential products, just as the demand for many of those goods was skyrocketing.
Those supply chain disruptions challenged the wisdom of “just-in-time” inventory practices. Companies that had historically focused on efficiency were suddenly faced with an urgent need for agility. Although COVID may have subsided, supply chain managers have ample reason to remember the lessons of 2020.
Volatility remains high for a number of reasons:
- Geopolitical instability driven by political unrest, economic sanctions, and military conflict is dampening production and obstructing trade routes in various parts of the world.
- Cyberattacks are on the rise. In 2021, the Colonial Pipeline ransomware attack led to fuel shortages at airports in the southeastern United States, and raised the alarm on vulnerable infrastructure. Similar attacks on meat processing plants in Brazil and the US made headlines just a month later.
- Trade wars and protectionism are creating further uncertainty with respect to global trade patterns. This has, in some cases, compelled companies to rethink their supply chain strategies.
- Extreme weather events such as hurricanes, floods, and wildfires have the potential to temporarily shut down ports, disrupt transportation, and damage infrastructure.
- The threat of another pandemic remains a concern, as some are predicting that recent COVID variants could prompt another round of shutdowns and labor shortages.
- Economic instability, including inflation and currency destabilization, creates risks that might have been easier to hedge in the past. As volatility increases, the cost of hedging rises accordingly.
Planning for Potential Supply Chain Disruptions
Manufacturers should remember the lessons of these past several years and continue to balance efficiency with agility and resilience. Here are some strategies to consider:
- Flexible manufacturing: This approach ensures that production capacity can easily be shifted to the make different products in varying quantities, without major retooling or new equipment. Smart, flexible, efficient production lines bring agility to the home front by allowing organizations to refocus their capacity quickly and at minimal cost.
- Diversification: Many companies are diversifying their supplier base and looking to domestic sources to supplement their offshore vendors. Naturally, this reduces reliance on a single supplier or region, and it has the potential to dampen the impact of dramatic currency fluctuations. For many manufacturers, this also presents an opportunity, opening the door to potential new customers in domestic markets.
- Digital Transformation: Companies are leveraging advanced technologies like AI, IoT, and blockchain to enhance visibility, predict potential disruptions, and respond in real-time. For manufacturers, technology provides a clear avenue for improved efficiency on the production line. In other words, by upgrading manufacturing tech, companies can shift their efficiency improvements to the home front, lessening the impact of supply chains that have the potential to increase costs.
- Increasing safety stock: While stockpiling raw materials can tie up substantial capital, it may be worthwhile in some cases, especially where larger inventories may protect the company from unforeseen supply chain disruptions.
- Collaborative partnerships: Collaborative efforts among suppliers, logistics providers, and manufacturers are helping many organizations to establish a safety net to hedge against disruptions.
While the COVID-19 pandemic may be behind us, we have learned important lessons along the way. Ongoing volatility threatens to introduce new disruptions to global supply chains. Adaptability, foresight, and resilience are more important than ever. While disruptions are inevitable given the uncertainties of our interconnected world, proactive strategies and collaboration can mitigate their impact. As businesses and policymakers navigate these challenging waters, the focus should be on building a more robust, responsive, and flexible global supply chain for the future.
Director of Marketing
I’m drawn to better and smarter ways of working and communicating. Many times that involves technology. Sometimes it doesn’t. Either way, work can and should be improved – continuously. I’m drawn to the mission of Flexware Innovation for these reasons. We’re committed to unleashing the potential of technology, freeing up leaders to focus on what’s next.