Supply Chain Resilience: Core Competence of High Performance SCM
Many companies have become painfully aware of the vulnerability of global supply chains in recent years. While at the beginning of the millennium the globalisation of supply chains was still a top priority for CEOs and supply chain managers, today the focus is on securing the flow of goods. The realisation that a resilient supply chain is needed in order not to jeopardise the functionality of the entire business model has become widespread.
In this article we clarify the role of supply chain resilience as a core competence of high performance SCM, show which guiding questions can be used to assess the degree of development of supply chain functions and give 10 recommendations for action to improve supply chain resilience.
How to make the supply chain more resilient?
Supply chain resilience is the ability to adapt early under changing conditions, to endure under change and to react flexibly to disruptions in the supply chain.The goal is to maintain the smooth flow of materials or to restore it after a supply chain disruption. Excellent supply chain resilience requires the interaction of diverse levers: internal competencies, processes, ICT applications, external networks and more.
While some levers had their place several years ago, others are in tension with post-millennial best practices focused on cost minimisation.
Lever selection is highly dependent on the level of development of the supply chain function in a company. It is critical for success to anchor levers appropriately in terms of processes, organisation and technology. In order to choose the appropriate approach, hpo recommends a maturity check of your SCM organisation.
Three key questions need to be answered:
- Prevention: How do we position ourselves to minimise the impact of risks and disruptions on the organisation from the outset?
- Risk identification and management: How do we identify risks in time, and how do we reduce the extent of damage?
- Recovery capabilities: How do we restore supply chains as quickly as possible after unavoidable disruptions?
10 recommendations for action to increase supply chain resilience
Increasing the supply chain resilience of a high performance organisation is part of holistic risk management. The following recommendations for action are based on the guiding questions mentioned above and together represent the basic framework of holistic resilience management.
Prevention
1. Consciously manage dependencies: lack of alternative sources of supply puts companies in undesirable dependencies. They increase the vulnerability of supply chains and limit the possibilities to quickly restore supply chain function. Central product and material groups should therefore be able to be procured from different sources. Where possible, single sources should be avoided. In the case of monopolistic markets, technological substitutes should be explored.
2 Strengthen supplier relationships: When supply chains break down, relationships with suppliers have an impact. A relationship based on partnership can determine whether a company is given the benefit of the doubt over other buyers. Supplier relationships should therefore be strategically strengthened. This is done either through contractual agreements or through strategic cooperation at the technological level.
3. Regionalise globally: Many purchasing organisations have been focusing on global supply chains or "global value sourcing", especially since the turn of the millennium. The primary goal was to reduce the total cost of ownership. However, globalisation is not an end in itself, but is also associated with costs in view of a changed global risk landscape. In order to secure the ability to deliver, it can make sense to also build up regional suppliers. Globally operating companies benefit from global regionalisation, i.e. the establishment of sources close to their respective production sites.
4 Further develop product architecture: Complexity is a significant driver of business risk. If a factory assembles 500 different parts in one production, the probability that one will not be delivered on time and correctly is much higher than with 100 parts. The development of adequate product architectures is thus one of the most important levers for reducing supply chain risks. Components should also be procured through multiple supply sources. An appropriate product architecture and, if necessary, modularisation require extensive cooperation with development, production, but also suppliers. The procurement organisation can act as a driver and facilitator for such cooperation.
Risk identification and management
5. increase supply chain transparency: In order to be able to react to emerging supply chain risks, they must be made transparent. This requires an understanding of one's own supply chains far beyond direct suppliers, which is often required for governance reasons alone. Furthermore, the visualisation of global supply chain risks helps in their identification and management. Modern digital solutions often lead to a performance leap in transparency.
6 Implement a risk radar: Risks should also be anticipated before they can affect supply chains. It is advisable to implement tools such as risk radars and embed them in processes to detect new and evolving risks. Even a few days' lead on the occurrence of a risk event can make the difference between supply chain collapse or continuity.
7. anchor supply chain risks in enterprise risk management: Supply chain resilience can only be increased if it is given company-wide importance and is an integral part of the overarching ERM process. The handling of evolving risks must be clearly and consistently defined across different corporate functions. Procurement, as an expert in quantifying elusive aspects in total cost comparisons, can act here as a thought leader for the quantitative assessment of risks across all business functions.
Supply chain recovery capabilities
8. increase the adaptability of the SCM function: Operational logistics and purchasing departments can at best "put out fires" when undesirable events occur. The adaptability of SCM functions, on the other hand, can be increased by aligning the handling of supply chain disruptions directly with strategic product development. In hpo organisational design, this corresponds to a central principle of designing high performance organisations: the consistent separation of strategic activities and day-to-day business.
9. Have task forces ready: Many companies have had good experiences with the use of task forces. Companies should fundamentally consider how they can mobilise the necessary forces at short notice to restore supply chains in the event of widespread disruptions.
10 Raise awareness of internal and external communication: Supply chain recovery requires good communication between all affected parties and stakeholders - be it production, development, suppliers or management. Speed and effectiveness of communication are crucial in this regard. It is therefore a must for SCM departments to define communication processes and content in a stakeholder-friendly way and to optimise them in terms of efficiency. If necessary, communication skills must be developed.
Sustainably anchor supply chain resilience in the organisation
hpo designs high performance organisations and brings them to life together with its clients. We systematically identify fields of action and options for a sustainable leap in performance and accompany and empower organisations all the way to successful implementation.
Improvements in prevention and increases in resilience emerge as soon as SCM is viewed from a holistic corporate perspective. High performance organisations permanently anchor the value-adding interaction between strategic and operational purchasing in their processes. We accompany the development to High Performance SCM with our holistic approach, which promotes continuous functional learning and strengthens your competitiveness in the long term.
With a short maturity check, we find out together with you where your SCM organisation stands on the basis of the guiding questions and options for action. Contact us.
