VUCA (volatility, uncertainty, complexity, ambiguity) has become a trendy acronym used by managers across industries to address the current business environment. But it’s more than just a trendy acronym. VUCA is the reality of today’s global supply chain.
We’ve seen it take the shape of demand uncertainty. We’ve experienced the pain of rising raw material prices. We’ve watched logistics challenges unfold before our eyes.
Unprecedented global disruptions continue to pose severe threats to the supply chain.
Businesses need new strategic solutions to these problems, especially as the frequency and magnitude of such global disruptions increase. Ad-hoc remedies, short-term strategies, gut decisions and the ‘old ways’ of doing things simply don’t cut it anymore.
Let’s take a look at the types of supply chain risks companies face. These risks can be bucketed largely into three categories:
- External or Ecosystem: Also known as macro-environmental risks, these are the external forces that affect the functioning of the supply chain – for example, natural disasters, geopolitical instability, local economic crises, cyberthreats, etc.
- Value Chain: Risks related to upstream and downstream supply chain partners. These include third-party risks such as daily operations hampered by labor disputes, plant accidents, supplier financial issues, etc. These risks can cause a high bullwhip effect across the entire supply chain.
- Operational: These are risks emanating from internal business operations like planning, sourcing, manufacturing and distribution. Disruptions or breaches in various supply chain support systems such as Finance, IT, HR and Legal can also threaten the supply chain.
Organizations need to proactively manage these various risks and anticipate market changes by building resilient supply chain networks that are risk-aware, secure, optimized, adaptive, transparent and fast-moving.
According to a BCG study, resilient companies outperform their peers during a crisis. The study shows the performance of approximately 1,800 US companies from 1995 to 2020, assessing their resilience by measuring the relative total shareholder return (TSR) of each company as compared with the average of its industry during crisis quarters – quarters in which that industry’s TSR saw a peak decline of at least 15 percentage points.
A resilient supply chain has built-in mechanisms to absorb the disruptions and bounce back quickly from the unavoidable risks. It allows companies to respond swiftly to ever-changing customer needs and maintain high service levels while keeping costs under control.
5 Ways to Improve Supply Chain Resiliency
- Increase supply chain flexibility. This will help the supply chain respond quickly to risks and disruptions. Multiple sourcing partners, nearshoring and in-house development of critical components can make a supply chain more flexible.
- Enhance supply chain visibility. A supply chain control tower or command center enables supply chain visibility and the ability to track and monitor supply chain events and predict trends and patterns. Predicting future disruptions in the supply chain can aid in proactively anticipating and managing the risks.
- Tap into AI-powered autonomous planning and simulation. Advanced solutions like digital twins take advantage of AI, and AR/VR can help organizations mitigate supply chain and operational risks. These solutions can simulate the performance of the entire supply chain in advance and alert business users about which nodes in the supply chain are likely to be affected by disruptions, helping to manage the trade-offs between resiliency and efficiency.
- Leverage collaborative ecosystems and partnerships. Fostering long-term relationships with suppliers, third-party manufacturers and logistics players helps to manage disruptions, mitigate risks and achieve a common objective. Leveraging small and niche solution providers’ digital point solutions can enhance visibility and agility.
- Create an empowerment culture rooted in ownership and accountability. Companies must have a clear governance structure to react quickly during supply chain disruptions. Clear accountability and ownership with a strong foundation of people, support processes and technology will help sustain a resilient supply chain.