Supply-chain disruption occurs more often than most organizations anticipate, and the impact associated with disruptions is increasing. Organizations plan as if catastrophic or “black swan” events occur once in a generation, but in reality, these types of disruptions are occurring every two or three years.
Companies need to focus on near-term supply-chain restoration. But they must also keep longer-term strategic thinking in mind.
Identifying Risk
Most outside risks that supply chains face come from political, economic, climate or cyber threats. Organizations must assess and understand their vulnerabilities in these dimensions.
- Climate: Natural disasters, dangerous weather conditions and public health issues
- Political: Changes in regional government affairs
- Economic: GDP fluctuations and commodity variability
- Cyber: Digital security incidents and malware threats
Assessing Impact
Disruptions negatively impact operations. These events can increase the price of raw materials, make shipping more difficult, extend lead times to customers and enhance supplier risk. Although these impacts can occur to any business, some are more vulnerable than others. If companies are unprepared to navigate disruptions, the magnitude of these risk scenarios will be enhanced.
Some factors that can lead to increased negative impact include:
- Lack of preparedness
- Limited flexibility
- Single sourcing
- Limited supplier visibility
- Centralized procurement
- Single-channel retail strategy
- Reliance on analog tools
Taking Action
With most disruptions, organizations need to first focus on near-term supply-chain restoration. But they must also keep longer-term strategic thinking in mind as they consider the supply chain across three horizons:
- Restore: Focus on immediately re-establishing supply-chain operations, transparently collaborating with customers and suppliers, and stabilizing cash flow.
- Rethink: Examine and evaluate capabilities required to support future supply-chain operations with a balance between cost efficiency, customer service and operational resiliency.
- Redesign: Design around future commercial and operating models, focusing on next-generation capabilities and partnerships.
These horizons ensure organizations have the tools to address immediate issues and restore supply-chain operations, while also positioning themselves for long-term success.
Outlook
Now is the time for companies to begin restoring, rethinking and redesigning supply chains to set defenses for the next disaster. Consumers will increasingly demand heightened levels of service and expedited delivery. Going forward, companies will need to be more flexible and operate with speed and accuracy to remain competitive and survive supply-chain disruptions.
Andy Prinz is a managing consultant, and Chris Iannacone is a consultant, at PA Consulting.
