Boosting Supply Chain Resiliency with Data Analytics and Artificial Intelligence

Boosting Supply Chain Resiliency

Coming out of the COVID-19 pandemic, many organizations are considering digital transformation as the key to ensuring supply chain resilience. Evolutions in technologies have enabled the creation of digital supply networks that can be used by companies to strengthen their procurement strategy. With new and emerging digital solutions involving artificial intelligence (AI) and analytics, companies now can harness their data to optimize inventory more effectively than ever before.

Even as the pandemic is receding, supply chain disruptions continue to be commonplace, and chief supply chain officers are under growing pressure to use and analyze real-time data to mitigate risk. According to a recent Forbes article, “43% of enterprises will continue to digitalize and integrate innovative technology into enterprise-wide systems. This means that in the coming year, the ability to augment operations and decision-making with data analytics will continue to be a transformative and highly favored capability.”

Forbes reports that implementing new data analytics capabilities is best considered as a series of digital initiatives, for which there are many options. For instance, the introduction of the metaverse is one solution that will greatly increase a company’s ability to deliver predictive insights across supply chain networks, enabling it to “reduce development times and risk, achieve higher operational efficiency, and improve resilience.”

Ensuring Continuity Throughout Disruptions

Companies are using analytics and AI to mitigate risk and ensure continuity throughout any global supply chain disruptions. These powerful tools help businesses automate tasks in a way they never could before, while gaining deeper insights for better, faster decision-making, according to Supply Chain magazine.

Supply Chain reports that digital twin technology is currently considered one of the most innovative uses of AI and data analytics in supply chains. A digital twin provides a virtual supply chain replica that enables scenario modeling to simulate the impact of disruptions, like market changes and natural disasters, allowing companies to determine how resilient their supply chain is. AI modeling also proactively identifies supply risk, such as a supplier’s inability to source needed materials, before it can become a problem.

Deloitte experts agree that “with improvements in data, analytics, computing power, and visualization, digital procurement has better evidence-based options for decision-making, which can improve both the value and accuracy of strategic decisions and the speed of execution.”

New disruptive digital supply chain technologies are altering the procurement function for the better. Deloitte recommends that procurement leaders invest in both:

  • Maturing digital solutions that are currently transforming procurement with minimal investment, such as cognitive computing/artificial intelligence, predictive/advanced analytics, intelligent content extraction, visualization, and crowdsourcing
  • Emerging digital solutions that could impact procurement in the future, such as block chain, sensors/wearables, cyber tracking, and virtual reality/spatial analytics

In the face of continuing disruption, companies must adapt to ensure supply chain resilience. Digital transformation is an incremental, multi-year journey. If your company has not yet created a digital procurement strategy and started this process, now is the time to consider the many AI and data analytics options available on the path to intelligent supply chain management.

The Supply Chain Connection with ESG Performance

The Supply Chain Connection with ESG Performance

Sustainability is a critical issue for many businesses, fueled by growing internal and external pressure to measure and strengthen environmental, social, and governance (ESG) practices. As companies seek to improve their ESG performance, supply chain management is also under scrutiny.

ESG issues relate to the supply chain in many ways. For example, companies are vulnerable to risk from the actions of their suppliers involving issues that include child labor, employee safety, and corruption and bribery. Supplier problems in those areas can create reputational damage for companies and even subject them to compliance and legal risks.

The environmental component of ESG is particularly relevant to the supply chain, which typically includes carbon-heavy activities such as transportation and production. The supply chain may drive as much as 90% of a company’s total carbon impact on the environment, according to the EPA. So there’s a lot of room for sustainability-related improvement in supply chains. This is driving a greater focus on companies’ so-called “Scope 3” emissions—those created externally, by other companies outside of the organization. 

But it’s important to recognize that sustainability is no longer just a corporate-responsibility or compliance issue. It’s also a good business practice.

A Window into ESG Vulnerabilities

The key reason why sustainability has become more important to business is because it’s under scrutiny by a growing range of stakeholders. Studies show that U.S. consumers prefer sustainable brands and products, and employees are increasingly likely to say they would prefer to work at companies with strong environmental and social agendas. Institutional investors are also on board, and by 2025, some $53 trillion—about one-third of the dollars under professional management globally—is expected to be in ESG funds, according to Bloomberg Intelligence.

Altogether, this means that sustainability is now playing a big role in meeting customer expectations, attracting and retaining employees, and accessing capital. Improving supply chain sustainability can help ensure that a company finds favor with these stakeholders.

But greater sustainability can also help improve supply chains because it goes hand-in-hand with reduced risk and increased efficiency. Sustainability and efforts to cut carbon emissions typically mean using less raw material, reducing energy and water consumption, and cutting the amount of waste that needs to be processed — actions that help reduce costs and accelerate operations. Tracking ESG data also provides a better window into potential vulnerabilities in the supply chain. And companies that put efforts into supply chain sustainability are likely to find it easier to forge relationships with quality partners who are looking to improve their own supply chain ESG performance.

“Supply chain agility and resilience are inseparable from the drive for sustainability,” a recent report from The Conference Board noted. “Building sustainable practices into supply chains has direct business benefits. It helps companies manage business risks, achieve cost savings through material efficiency gains, enhance brand reputation, create growth opportunities, and manage suppliers more effectively. Harmful environmental practices and inhumane working conditions not only pose reputational risk but also direct disruption risk.”

In the end, supply chain sustainability should not be seen as a burden or peripheral issue. Instead, it’s fast becoming something that is central to sound supply chain management. And it is another area where the supply chain can make a big contribution to competitiveness—and to the health of the planet.

Avoiding Supply Chain Imbalance Through Collaboration

Avoiding Supply Chain Imbalance Through Collaboration

When we think of supply chain disruptions, we usually only consider the shortages that became familiar during the pandemic—back-ordered or unavailable parts, empty store shelves, long delays in shipping and fulfillment. But it seems that many companies are now experiencing the opposite, in the form of significant excess inventory.

This problem is having an impact in a variety of industries, with overall manufacturer and trade inventories in June being up 18.5% compared to the previous year, according to the U.S. Census Bureau.

Every company is different, but many appear to be experiencing inventory imbalances driven by abrupt changes in either supply or demand, or both. Managing inventory is always challenging, but the volatility of the past two years has made it especially difficult. As supplies ran short during the pandemic, many companies boosted orders to build buffer stocks. Now, with demand subsiding somewhat—or shifting to different products—some of those companies are left with too much inventory. This can lead to excessive amounts of capital being tied up in goods, along with other carrying costs for things such as storage space and insurance. And for companies focused on innovation, excess inventory increases the potential for product obsolescence, as components sit on shelves waiting to be used. 

Taming Supply Imbalance

What can companies do to reduce inventory imbalances in the future? There is no simple answer, but they can take steps such as tightening their inventory-accounting practices to gain a more timely, detailed view of the materials they and their suppliers have on hand. This can help them understand how well inventory is aligned with demand. Additionally, they can change their ordering patterns to focus on smaller, more frequent purchases; making it easier to respond quickly to changes in demand. They can also conduct assessments that proactively identify potential risks in the upstream supply chain.

More broadly, companies can re-examine just-in-time practices and look for ways to use targeted, carefully managed buffer inventory to reduce their vulnerability to shortages. Or they can consider structural changes to the supply network, including reshoring to reduce reliance on long global supply chains and bringing more suppliers into the mix to expand sourcing options.

Looking forward, effectively managing inventory imbalances in an era of “disruption as normal” will require increased visibility across larger portions of the supply chain. Here, companies can consider technologies ranging from EDI to supplier portals and cloud-based supply-chain platforms that let partners work together to understand supply and demand to optimize inventory levels.

In the end, however, the best tool for avoiding inventory imbalances will be relationships that allow partners up and down the supply chain to communicate and collaborate to identify imbalances early on. For many, this will call for new ways of working with partners to share information about risks and disruptions in production and logistics; about the design of new products; about products reaching the end of their lifecycle; and about changes in end-customer demand.

To a great extent, inventory imbalances are the result of uncertainty. Strong relationships that foster greater information-sharing will be key to cutting through that uncertainty to keep inventories at levels that will meet the needs of companies and customers alike.

Strengthen Product Supplier Partnerships to Address Current Supply Chain Dynamics

Strengthen Product Supplier Partnerships

As supply chain constraints have shifted traditional buyer-focused procurement and supply-chain systems into being more supplier-focused, some procurement experts are calling 2022 “the year of the supplier.” Businesses today are facing pressure to diversify and localize their supplier base, putting manufacturers in a stronger position.

In this new landscape, companies are increasingly adopting a supplier relationship management (SRM) approach to create better working relationships. This mindset envisions the buyer-seller dynamic as an active partnership that can bring value to your company.

When correctly implemented, SRM creates a mutually beneficial relationship where your organization and its suppliers are working together to reach common goals. It helps supply chain managers ensure safety, security, compliance, and cost savings at all stages of the process.

To adopt an effective SRM approach, four strategies suggested by operations services provider Symplr include:

  • Learning about your suppliers
  • Educating them about your organization
  • Communicating and keeping them informed about the big picture
  • Setting clear expectations and KPIs and checking on them regularly

It also makes sense that in a world where companies are highly focused on managing how customers, employees, and the general public experience their brand, they extend that focus to the supplier experience as well. In today’s supplier-focused market, some companies are going beyond SRM to practice supplier experience management (SXM), which engages suppliers through many different components like bidding, information management, communication, insights, and support.

Organizations can improve the experience they offer to suppliers by creating an SXM road map, mapping out supplier journeys through your systems, designing a supplier communication plan, and adopting new digital solutions, among other steps, according to a recent article by global management consulting firm Kearney.

Ultimately, it’s no longer sufficient for companies and product suppliers to adopt distinct buyer and seller roles. In the new supply chain environment, both must be focused on developing authentic partnerships to succeed.

Dynamic stands ready to help you with this process and serve as a true strategic partner in your supply chain’s success. We acquire products only through OEM-authorized channels. Our expertise and connections with more than 800 technology providers can help your company realize supply chain savings and plan ahead for important events including product End of Life (EOL).

Learn more about Dynamic Technology Supply Chain Management solutions.

The Supply Chain’s People Problem: What It Means for Your Business

Supply Chain’s People Problem

In a recent report, CBS News noted that at the Port of Los Angeles, incoming cargo is straining warehouse capacity.  The number of containers waiting to be shipped inland has jumped from 9,000 to 35,000, and incoming cargo ships may soon be backed up in the harbor. The cause of this disruption is not wildfires, storms, geopolitical forces, or trade barriers, but rather a lack of railroad workers to haul containers out of the port. That’s just one problem in a single location, but it illustrates the fact that labor shortages have become a major source of continuing supply chain disruptions.

Supply chain labor shortages have made headlines throughout the COVID pandemic, and they were already in evidence long before the term “the Great Resignation” was coined. While COVID clearly made labor shortages worse, it’s not the only factor driving the problem. Waves of retiring baby boomers, a lack of critical technical talent, and the new expectations of younger workers have all made it difficult to recruit and retain the right people. And the problem is not going away soon.

Gaining More Resiliency While Reducing Vulnerability

The question is what can be done about it. Much of the problem is, of course, outside of any one company’s control. Manufacturers, for example, cannot solve their suppliers’ labor problems for them. But they can work to increase visibility into their partners’ operations to identify problems early on; keep the channels of communication with partners open; expand their supplier base to reduce reliance on a limited number of partners; and build robust risk management capabilities to make supply chains more resilient and less vulnerable to the labor shortages their partners might face.

There are also internal actions companies can take. Typically, much of the supply chain is in-house and performed by a company’s employees—and that reality should prompt companies to revisit their talent strategies. A recent study from the Pew Research Center, which looked at why people quit their jobs last year, offers some insights that can inform those efforts.

Pew found that less than one-third of the people who quit their jobs last year did so for COVID-related reasons. Instead, many pointed to low pay as a top reason, cited by about two-thirds of respondents. But workers also pointed to a range of other reasons, some of which could be addressed by targeted changes to company policies. For example, child-care issues were cited by nearly half of employees with young children, which suggests that daycare programs could be an advantage in the labor market. And more than 4 out of 10 respondents cited a lack of flexibility in work hours; here, companies might consider strategies such as flex time, job-sharing, and the use of digital technology to support more remote work.

“Soft” issues are also critical. About two-thirds of respondents said they quit because “they felt disrespected at work.”  Executives should take that to heart because they set the tone for a respectful company culture. They can back that up with training and clear career paths that demonstrate respect.

Overall, addressing the supply chain labor shortage is not just about higher pay, but also about how the company relates to employees and their lifestyles. There is no silver bullet solution available. Instead, companies will need to consider “all of the above” to create a clear employee value proposition that will enable companies to attract and retain the employees they need to keep their supply chains moving.  It’s a puzzle±but those companies that crack it will be in a better position to keep their supply chains running smoothly and efficiently.

Disruptions Make Supply Chain Risk Scoring an Essential Management Discipline

Knowing the Score

Supply chain disruption has unfortunately become something of a norm. The interconnected, time-sensitive, and global nature of today’s supply chains means that an event can quickly have a broad ripple effect. And there is a growing range of potential disruptive triggers out there, from product recalls to cyberattacks, political turmoil, and violent storms.

Supply chain disruptions can emerge quickly and unexpectedly. As McKinsey & Company noted, “Consider the sudden eruption of a long dormant volcano that disrupts a supplier you didn’t know was in your supply chain….” Predicting such scenarios “is likely impossible for even the most risk-conscious managers.”

But being unable to predict supply chain disruptions does not mean that you can’t prepare for them.

With the broad range of threats facing operations today, companies need to have a formal, structured approach to identifying, understanding, and managing supply chain risk. Developing a disciplined approach can be a daunting challenge—but it can be made easier with a risk-scoring assessment that uncovers the supply chain’s weak points and identifies where disruptions are likely to have the biggest impact.

A Self-Diagnostic Tool Designed to Measure Supply Chain Risk Exposure

Effective supply chain risk management must be as thorough as possible. For example, our Dynamic Supply Chain Risk Scoring methodology provides a rigorous process that includes an in-depth analysis of the Bill of Materials (BOM) for products and the supply chains associated with each material. It evaluates supply chains across a set of major risk categories, based on Failure Mode and Effects Analysis (FEMA).

For example, it identifies problems such as:

  • Rigid or overly specialized component specifications that can limit the ability to adjust to supply chain disruptions.
  • Over-reliance on custom products and the limited number of suppliers that can provide those products.
  • Lack of visibility into the lifecycle and likely end-of-life dates for key components.
  • Insufficient inventory buffers that increase the risk of supply stockouts.

After identifying any weaknesses and vulnerabilities, Dynamic’s methodology ranks and prioritizes specific risks based on the likelihood of a potential disruption and the level of financial, reputational, and operational harm it might cause. Armed with that prioritized list, supply chain managers can allocate resources to target their top threats and move proactively to mitigate potential risks—modifying sourcing strategies to spread risk across more suppliers, for example, or stocking up on or finding alternatives for components that are reaching the end of their life. Over time, they can use the assessment as a guide to re-evaluating specific risks as conditions change.

When performed correctly, a risk evaluation and scoring effort is of significant undertaking. It can take several weeks to complete and involves responding to dozens of detailed questions. But the task is well worth the time that’s required.

To provide insight into the range of risks that should be covered, Dynamic offers a complimentary self-diagnosis checklist consisting of 10 questions that companies can use to quickly gain initial insights into their level of supply chain exposure, and better understand how a full risk-scoring effort could help them.

In today’s environment, companies can’t predict where the next supply chain disruption will be coming from. But they can build and strengthen their risk management capabilities and make their supply chains more resilient. A thorough risk-scoring initiative can be a powerful first step in the effort to take a more comprehensive, disciplined approach to managing supply chain risk.

For Your Supply Chain Summer Reading List: A thriller, a graphic novel, and a “How-To” book

Supply Chain Summer Reading List

It’s tempting, as you head out on vacation this summer, to leave the laptop at home and turn your attention to the best-selling mystery novel you picked up at the airport while waiting for your delayed flight to finally board.  But there’s an argument to be made for filling your suitcase with books that explore—and offer thought-provoking remedies to—the critical mysteries that you wrangle with every day: How to keep your supply chain moving in the face of natural and man-made disasters. How to create and manage a product development process that maximizes profitability and remains resilient regardless of market forces. How to forecast new challenges and turn them into opportunities before they wreak havoc with your business. How to infuse the spirit of innovation, experimentation, and constant questioning throughout your company, using crises to spur growth.

Not the relaxing read you were looking for? On the contrary, we would submit that the following collection of books may well provide not only solace in this challenging time but bring you back to work both reenergized and recommitted.

In Ian Bremmer’s new book, The Power of Crisis, this renowned political scientist explores the paralysis that many business leaders have felt when confronting recent global health emergencies, climate change, and even artificial intelligence, especially when consensus on actions to take has become so difficult to reach. But, through a careful look at both historic and current strategies, he’s able to demonstrate that “governments, corporations, and every concerned citizen … can use these coming crises to create … worldwide prosperity and opportunity.”

MIT professor and serial entrepreneur Yossi Sheffi, who spoke to Dynamic in a recent edition of Value Chain, provides similar evidence in The Resilent Enterprise. Building on his 2016 volume, The Power of Resilience, Sheffi uses real-world case studies from such companies as Nokia, Dell, UPS, Apple, and Toyota to show how the flexibility—and resilience—these companies have built into their supply chains have allowed them, despite the volatile marketplace in which they operate, to balance security, redundancy, and short-term profits, reducing risk and achieving competitive advantage.

In Transforming Supply Chains, Sydney-based supply chain thought leaders John Gattorna and Deborah Ellis take a similar stance, showing how companies can successfully incorporate geopolitics, climate change, social media, and fragmenting consumer behavior into both their supply chain design and their daily operations. Toward that same end, Risk—and Your Supply Chain, by supply chain and procurement leaders Omer Abdullah and Subash Chandar, reexamines standard approaches to crisis and risk management and concludes that business leaders can not only safeguard against current crises, but prepare for those yet to come.

The mindset necessary to take this approach, argues supply chain consultant Nicolas Vandeput in Data Science for Supply Chain Forecasting, is rooted in such scientific method principles as experimentation, observation, and constant questioning. Product management veteran Matthew Fitzgerald applies this approach to product lifecycle management in Trees Don’t Grow to the Sky, warning, in the words of the German proverb from which he took his book’s title, against straight-line thinking, pointing out that “the product, the customer, the market will not continue to grow simply because they have always grown in the past.”

Still too heavy for the beach? Then consider illustrator Dean Motter’s recent graphic interpretation of the late management guru Eliyahu M. Goldratt’s 1984 best-selling business novel, The Goal, which tells the story of a harried plant manager who saves his factory after a former professor introduces him to the Theory of Constraints. Or Devil in the Chain, billed as “a supply chain management business thriller.” In business turnaround expert James Amoah’s story, a family uses the principles of supply chain management to lead their chocolate business from likely failure to success.

Inspired? Then start putting together your Christmas gift list today. One suggestion: Sustainable Procurement, due out in December, purchasing authority Jonathan O’Brien’s argument that savvy management of supply chains is intricately tied to the quest for sustainability.

Steps to Managing Geopolitical Risk on the Road to Supply Chain Resiliency

Managing Geopolitical Risk

In addition to the ongoing effects of the pandemic, geopolitical issues around the world are creating unstable operating environments that can increase costs while lowering supply chain efficiency. Tariffs, sanctions, civil unrest, and military action can disrupt access to suppliers, markets, and shipping channels.

In the face of destabilization caused by events like the war in Ukraine or COVID-related factory closures in China, how can you bulletproof your supply chain to make sure that the products you need are not caught up in political disputes?

Some experts believe we’re currently in a period of re-alignment of manufacturing economics. For example, according to futurist Trond Arne Undheim, the world went too far toward lean, just-in-time supply chains, so now, in today’s political environment, the geopolitics of manufacturing needs to adjust, adapt, and align by putting greater focus on regional networks and innovation.

Thanks to the impact of the pandemic combined with geopolitics, “reshoring, even major reshoring that will be costly and take time to implement, is back on the table” for manufacturers, Undheim said in a recent Forbes article.

The Quest for Strategic Agility

With this sort of manufacturing rebalancing taking place, strategic agility is essential to managing geopolitical supply chain risks. “You should be confident in your organization’s ability to monitor, measure, and manage exposure to geopolitical events,” according to PwC business transformation analyst Matthew Comte.

Business leaders should be aware of their major supply routes, and how existing or emerging geopolitical conflicts could make them vulnerable, Comte explained. To reduce risk, they can consider not only regionalizing their supply chains or reshoring, but also other strategic actions.

To develop strategic agility, Comte recommends that company leaders:

  • Monitor geopolitical trends and events that may impact key suppliers
  • Identify risk exposure by mapping supply chain nodes for suppliers around the world
  • Assess each node’s vulnerability to disruption and the company’s ability to mitigate various types of geopolitical risks
  • Plan to adapt business strategies and operations to changing geopolitical conditions on short notice, such as by securing redundant suppliers or creating an inventory approach that straddles just-in-time and just-in-case strategies

Other steps executives can take to manage geopolitical risks more proactively and strategically include identifying quantitative political risk indicators; assessing the business impact of political risk; integrating political risk into enterprise-wide processes; engaging the board and the C-suite to incorporate political risk into strategic planning; and setting up a cross-functional geostrategic committee, according to a 2021 EY Geostrategy in Practice study conducted in collaboration with the Political Risk Lab at the Wharton School of the University of Pennsylvania.

The Impact of Digital Twins

Leveraging data and technology is yet another way for companies to mitigate geopolitical risks. For example, digital twins are being used by some companies as an emerging artificial intelligence (AI)-powered tool that allows supply chain managers to run “what-if” scenarios.

When political issues arise, digital twins calculate the risks, estimate the impact on a supply chain, and suggest ways to minimize disruptions and slowdowns, according to a recent Workflow article.

From strategy development to data management to technology solutions, Dynamic Technology Solutions provides a broad portfolio of supply chain services designed to anticipate and mitigate internal and external risks. Review our technology supply chain management case studies and learn more about what we can offer your company.

In Product Design, Risk Management Starts at the Beginning

As the old saying goes, “an ounce of prevention is worth a pound of cure.” That’s especially true when it comes to managing supply chain risk.

In a time when supply chain disruptions have essentially become the norm, companies are working hard to constantly monitor their current supply chains for problems. That’s a critical step, but they can do even more by incorporating risk management into the product development process early on, at the design phase.

That means approaching product design and specification processes with a risk mindset as a matter of course. Reducing the use of customized components. Using components that are available from more than one source. Exploring the use of parts made in the U.S. and other countries that are less vulnerable to supply chain disruptions. Coming up with specifications for noncritical components that make it possible to use a variety of substitutions when needed. And so on.

Overall, product design teams should look beyond cost when choosing components and give supply chain risk as much weight or more when making decisions. That’s a reversal of the traditional approach, and not always easy to do in the face of constant cost pressures. But remember: Supply chain disruptions can mean that a company can’t deliver products to customers. That can be far more costly to the business than using slightly more expensive components, and it can lead to lost sales, disaffected customers, and reputational damage.

Work Closely with Suppliers

It’s also critical to work with suppliers on this risk-aware approach to product design. Suppliers should be consulted up front and asked to provide insight into potential risks from their perspective. What can they tell you about end-of-life plans for the components in question—theirs and those of their parts suppliers? How long and strong are their relationships with the manufacturers they rely on? How well do they know the potential risks involved in the countries they source from? Are they diligently managing risk in their supply chain?

Various channels of communication should be kept open to allow broad discussion of these issues. But companies should also ask suppliers these questions in a formal fashion. That is, they should require suppliers to provide detailed lists of potential risks in their quotes and master service agreements. This will clearly underscore the fact that they are expected to collaborate on managing supply chain risk. And it will give the company’s product-development group valuable insight into how to design risk out of products; allow procurement teams to weigh risk factors when evaluating proposals and vendors; and give the company an opportunity to make informed decisions about where it wants to assume, share, reject, or modify those risks.

We’re all familiar with the concept of “design for the supply chain,” in which products are designed with supply chain optimization in mind. Now, that needs to be updated to “design for supply chain risk.” The more product designers can know about supply chain risks in advance, the more they can do about those risks—and take steps to design supply chain resilience into their offerings right from the start.

Skin in the Game: A Collaborative Approach to Identifying Supply Chain Risk

skin-in-the-game

Transparency and visibility are critical to the effective operation of supply chains, and manufacturers and suppliers share a great deal of information in order to increase efficiency and predictability and, ultimately, get materials and products to the right place at the right time. But that type of collaboration often falls short in one key area—the identification of risk.

Typically, manufacturers are highly diligent when it comes to asking suppliers to share data about costs, schedules, and lead times—but very few apply the same sort of rigor when it comes to requiring information about upstream supply risks. They may hope that suppliers give them that information, or they may try to find it on their own, but they rarely press suppliers for it. As a result, there is an increased likelihood that disruptions will catch them by surprise and that they will be forced to react to problems rather than prevent them.

That approach is becoming less and less tenable. As a report from McKinsey & Company notes, we are now “operating in a world where disruptions are regular occurrences. Averaging across industries, companies can now expect supply chain disruptions lasting a month or longer to occur every 3.7 years, and the most severe events take a major financial toll.”

The “Push” Approach

Manufacturers can address this by establishing a disciplined process in which suppliers proactively “push” risk information to manufacturers, rather than waiting to be asked for it. That means that contracts and RFPs should require suppliers to provide information on potential issues with obsolescence, sourcing, sustainability, and compliance for the manufacturer’s mission-critical products and components. The point is to ensure that suppliers have some skin in the game, and a clear responsibility for scanning the horizon for risk.

This process should also include mechanisms that make sure that this supplier risk information is fed to the appropriate people and functions within the manufacturer organization. This should include product and engineering teams, who can use that information to modify designs to mitigate the identified potential risks. Internal teams should also communicate closely with suppliers to provide guidance on specifications and streamline the authorization of alternative components to help reduce risk.

Mutual Benefit

All of this will require fundamental change in the traditional relationship with suppliers, and that may make suppliers uncomfortable. Therefore, it’s important to remind them that the increased responsiveness to risk that this process will bring will benefit them and the supply chain as a whole, as well as the manufacturer. And it will them help build higher levels of trust that strengthen their relationships with their customers.

This process is not, in itself, a cure-all for supply chain risk, and manufacturers will still need formal internal processes for evaluating these risks using a broad range of data and mechanisms to ensure that senior management can monitor risk. But the flow of supplier information can support those internal processes. Suppliers are, by definition, in a better position to see upstream risks—and in essence, this approach lets manufacturers tap into that perspective to extend their “risk perimeter” further out from the organization. Moreover, in the event of an unavoidable disruption, the shared understanding of risk and the increased levels of trust will put suppliers and manufacturers in a better position to work together to recover, thereby enhancing the resilience of the supply chain.