Disruptions expose how fragile global supply chains can be. Businesses scramble to pivot and repair supply chains, adapting operations, sourcing, manufacturing and distribution as needed. Given this, today’s supply chain leaders focus on building the supply chain resilience needed to prevent the crippling effects of future disruptions.
The online Bachelor of Science in Business Administration (BSBA) – Global Supply Chain Management program at Northern Kentucky University (NKU) prepares students to be leaders in this complex field. Through intensive study of strategic planning, global logistics management, risk mitigation and problem-solving, students learn how to foster supply chain resilience and address the challenges of future disruptions.
How Do Disruptions Negatively Impact Supply Chains?
Disruptions negatively impact supply chains by breaking the interconnected networks that global commerce depends on. Today’s global supply chains rely on these networks of materials sources, manufacturers, warehouses, distribution channels and logistics providers. Disasters and volatile conditions of all sorts can easily disrupt such complex supply chains.
For instance, environmental disasters can impact shipping and logistics. New regulations may affect material and labor sourcing. Military conflict can shut down supply chain processes in an entire region. Social movements may shift public perception, ethical concerns and viability of certain supply chain channels. Even disease outbreaks can disrupt many aspects of supply chains locally and globally, as evidenced by the COVID-19 pandemic.
Supply chains are vulnerable to disruption in nuanced ways, largely because many supply chain components rely on the success of previous steps or links in the “chain.” In many cases, every finished product is dependent on every aspect of a singular supply chain functioning properly and efficiently. If any supply chain function fails, the whole supply chain and the entire production process can grind to a halt.
What Happens to Businesses When Supply Chains Break Down?
When supply chains break down, businesses face both immediate revenue losses and lasting damage to customer relationships. According to the Institute for Supply Management (ISM), nearly all companies faced supply chain disruption in 2023, and a single production stoppage can wipe out 30% to 50% of a company’s earnings before interest, taxes, depreciation and amortization.
During supply chain disruption, production and delivery times can extend exorbitantly, and customers might look elsewhere for similar products with current availability. Companies lose business and revenue in the short-term. They may also lose customers and revenue in the long-term, causing irreparable harm to a business’s bottom line.
Clearly, building resilience to supply chain disruption is essential for business success and continuity through challenging times. Here are five strategies supply chain leaders are employing to foster supply chain resilience:
1. Adopt Agile Practices
Agile supply chain management underscores many supply chain resilience strategies. To address risk analysis of potential disruptions, supply chain managers can incorporate and plan for agility in current operations and disaster response plans.
Adopting agile practices and preparing for operational pivots allow for rapid adaptation and quicker or virtually immediate recovery when disruptions, disasters and emergencies occur. Thus, agile supply chain management strategies are essential for continuity and resilience.
2. Stress Test Supply Chains
Planning for agility and resilience requires more than analyzing and mitigating risk. Supply chain management professionals should inspect each link of the chain, simulating various disasters or disruptions to find weaknesses and flaws in supply chain design. Identifying and remedying such problems proactively can build resilience and maximize the effectiveness of response and continuity plans.
3. Diversify Supply Chain Channels and Multisourcing
When relying on singular sources for raw materials, manufacturing or labor, a disruption to a single source can shut down the entire supply chain. Diversifying and multisourcing supply channels builds resilience to such disruption, inspiring companies to restructure their sourcing models. For example, a Deloitte Insights report found that 57% of industrial manufacturers with operations in China are considering a “supplier + 1” dual-sourcing strategy to reduce supply chain concentration risk.
4. Use Strategic Inventory Management
Producing and storing a strategic excess of inventory, or capacity buffer, can help prevent inventory depletion and exhaustion during supply chain disruption or surging demand. Securing and retaining contract manufacturers for surge needs (or disruption needs) can also help maintain continuity in inventory and distribution.
5. Go Local
Securing supply sources closer to the location of consumers, known as nearshoring when in a neighboring country or reshoring when in the consumers’ country, can help reduce reliance on potentially fragile global supply chains. It can also help businesses move products through the supply chain to end consumers more quickly and directly, a boon when disruption interrupts complex, longer distribution channels.
What Does It Take to Build a Resilient Supply Chain?
Taking these and other steps to build agile and resilient supply chains is essential for weathering disruption successfully. Strategic resilience is key to continuity.
Strategies like multisourcing, increasing inventory capacity buffer and nearshoring sourcing and production sites can be expensive and time-consuming. Yet the immediate and long-term loss of revenue from extreme supply chain disruption often outweighs the moderate regular expense of building strategic resilience. For businesses operating in today’s volatile global economy, that investment is not a luxury but a necessity.
Learn more about NKU’s online B.S.B.A. – Global Supply Chain Management program.
