Due to the pandemic factor and consumer needs, the challenge for companies will be to make their supply chains more resilient without weakening their competitiveness.
That is why managers must first understand their vulnerabilities and then consider a series of steps.
1. Identify and Address the Hidden Risks
Modern products are characterized by having critical components or sophisticated materials that require specialized technological skills to manufacture. But for companies, possessing the breadth of capabilities necessary to produce everything on their own is almost impossible.
That is why many of the manufacturers have turned to suppliers and subcontractors that focus on a single area, and those specialists, in turn, often rely on many others.
This technology brings the benefit of having greater flexibility in the product and its technological advancement.
2. Identify your vulnerabilities
Most of the companies have focused their attention only on strategic direct suppliers that account for large amounts of their spending. To avoid excess costs and time.
The objective of the mapping process using metrics should be to categorize suppliers as low, medium or high risk. Such as the impact on revenue if a certain source is lost.
It is vital to determine how long your business could withstand a supply shock without shutting down, and how quickly an incapacitated node could recover or be replaced by alternate sites when an entire industry faces a shortage related to the outage.
Once you’ve identified the risks in your supply chain, you can use that information to address them by either diversifying your sources or stocking key materials or items.
3. Diversify your supply base
Managers should consider a regional strategy of producing a substantial proportion of key goods within the region where they are consumed.
One solution would be to reduce dependence on China. This may be easier for some products than others. Things like furniture, clothing, and household items will be relatively easy to obtain elsewhere because supplies such as wood and plastic are basic materials. But it will be more difficult to find alternative sources for sophisticated machinery, electronics, and other goods that incorporate components such as high-density interconnect circuit boards, electronic displays, and precision castings.
Hold intermediate inventory or safety stock.
If alternate suppliers are not immediately available, a company should determine how much extra stock to hold in the interim, in what form, and where along the value chain.
4. Take Advantage of Process Innovations
New technologies already allow companies to cut costs or switch more flexibly between the products they manufacture, making the installed foundations of competitors or established suppliers obsolete.
Many of these advances also present an opportunity to make factories more environmentally sustainable. Such as the automation, new processing technologies, continuous-flow manufacturing and additive manufacturing.
5. Revisit the Trade-Off Between Product Variety and Capacity Flexibility
Companies should reconsider the pros and cons of producing numerous product variations.
Source: Harvard Business Review