How can you stress test your supply chain resilience?

Ever since the pandemic highlighted the inextricable link between a smooth-running supply chain and strong business performance, companies have been taking steps to improve their supply chain resilience. But how can you be sure that you’re optimally prepared for the disruptions that inevitably lie ahead? In this blog by Involvation’s Jeroen Scheepers, he outlines how to conduct a ‘stress test’ of your supply chain resilience. “To identify the critical vulnerabilities in your specific context, you need to consider the three aspects of resilience: business strategy, industry drivers and your own resilience-related capabilities.”

Why improving supply chain resilience is a priority

With all the materials shortages and delivery delays experienced during the pandemic still fresh in their minds, many companies have made it a priority to improve their supply chain resilience. Wisely, business leaders have recognized that we live in a volatile, uncertain, complex and ambiguous (VUCA) world. They are keen to be optimally prepared for future challenges, whether resulting from changes in market dynamics, economic fluctuations, geopolitical tensions and conflicts, or ‘black swan’ events which – by definition – occur unexpectedly.

Balance the present with the future

Just to get one thing clear: I applaud every company that is working to strengthen its supply chain resilience. After all, maintaining top-level performance in the present while also acting to sustain your success in the future is not an easy balancing act. But, as one supply chain executive working in the construction sector asked me recently, how can you know if you are taking the right steps so that you are truly ready for what lies ahead? 

That’s a very good question, and it’s actually one that more organizations should be asking themselves. This set me thinking about how supply chain resilience can be stress tested. I realized that it ultimately comes down to identifying the critical vulnerabilities in your specific context.

Strategy and industry drivers

So how can you go about this? And how can you ensure you strike the right balance between cost efficiency and resilience? Because, as always in business, it’s important to invest your time and money in measures that will have the most impact: to ‘pick your battles’, as the saying goes.

Preparing for the future starts with having a clear strategy: what is your value proposition, what is your organization’s focus, and what do you need to excel at in order to secure competitive advantage? To stay one step ahead of changes, you also need to understand your specific industry challenges affecting supply, demand and the competitive landscape.

Analyse your capabilities

As the next step in stress testing your supply chain resilience, you should take a critical look at your resilience-related capabilities. That means assessing your performance in these five areas of competence:

• Collaboration: internal (e.g. S&OP/IBP) and/or external (e.g. sharing forecasts, schedules and other information with suppliers)
• Flexibility: within supplier agreements (e.g. flexible volumes) and/or dual sourcing (e.g. alternative supply options)
• Visibility: e.g. early warning systems, insight into the potential risks associated with Tier 2 and Tier 3 suppliers
• Agility: speed and responsiveness to changing demands in terms of your operations (e.g. in production, warehousing) and/or your processes (e.g. decision-making)
• Redundancy: buffers to cope with fluctuations in demand (e.g. inventory management, overcapacity in production or outsourcing options) 

It’s not only almost impossible to score highly on all five of these areas of competence, but it is also unnecessary. If, however, the lower-scoring areas are in conflict with your strategy or are preventing you from addressing an industry challenge, they are making you vulnerable. Therefore, to make the right decisions about which improvements to make and when, you need to consider your performance and capabilities in the context of both your strategy and your industry profile. 

Identify critical vulnerabilities

For example, you might have a low score for redundancy because your utilization equipment ratio is almost 100%. Or perhaps you have slow decision-making processes, reducing your agility. Or maybe you lack the flexibility to cope with sudden upswings in demand. These would be critical vulnerabilities if you’re pursuing a customer intimacy strategy, which requires you to adapt to whatever your customers want and need – but less so if you have a cost leadership strategy, meaning your key driver is efficiency. 

Similarly, a low score for visibility would be more of a red flag for businesses in sectors where tracking and tracing is vital. Examples of these industries include food, pharma and even fashion, which is a sector currently under increased scrutiny from an environmental, social and governance (ESG) perspective due to shifts in consumer awareness.  

Ways to improve your supply chain resilience

Once you’ve identified the critical supply chain vulnerabilities for your organization in light of your business strategy and industry challenges, there are multiple ways to address them. For example, one of our manufacturing clients in the high-tech sector discovered gaps in collaboration and visibility. To strengthen collaboration, the company invested in involving its suppliers in a solid integrated business planning (IBP) process, and also set up vendor-managed inventory (VMI) constructions. To improve visibility, we helped the manufacturer to map the supply chain and make its Tier 2 and Tier 3 suppliers more transparent. 

In another example with a client in the automotive industry, we supported the transition to more modular approach to product design to improve the standardization among raw materials and components, resulting in more flexibility. This was further enhanced by a dual-sourcing solution. 

Prepare for tomorrow, enable today

Stress testing your supply chain comes down to identifying your critical vulnerabilities. To do this, you need to analyse your capabilities in the context of your organization’s strategy and industry drivers. Combining these three factors will enable you to strengthen your supply chain resilience by making the most effective improvements, prioritized based on the effort-benefit ratio in the short and longer term, to optimally prepare for tomorrow while enabling today.

Click here to complete the Resilience QuickScan. Alternatively, contact Involvation for help with identifying your critical supply chain vulnerabilities in the context of your company’s capabilities, your strategy and your industry, and for expert advice on how to address them.