Smart companies have always created contingency plans they can turn to in the event of a disaster or a disruption to production or the flow of materials. But the advent of lean, just-in-time global supply chains, combined with a documented uptick in supply chain disruptions, both natural and man-made, mean that simply planning is no longer enough.
According to The World Economic Forum (WEF), “Increased volatility is the new normal for globalized and interconnected supply chains. Supply chain risk management approaches configured for more stable times now need to be updated.”¹
WEF advocates a more resilient supply chain, one that not only reduces and recovers from risks but also anticipates, rapidly adjusts, and even capitalizes on unanticipated supply chain events or disruptions. Many supply chain leaders are relying on 3PL partners to facilitate this resiliency, so that supply chain capacity is assured in all market conditions.
Planning for Disruption
Traditional supply chain design often meant building up significant assets over time, owned or through partnerships, to accommodate peaks in activity. However, the cost of maintaining this excess capacity, combined with today’s shortened product lifecycles, more demanding consumers, and the volatility that comes with expanding into global markets, mean this approach is no longer working.
The risk inherent in these inflexible networks has become clear in the wake of a string of recent disasters, such as the Japanese tsunami and volcanic eruptions in Iceland, as well as political instability and even everyday disruptions such as poor supplier performance or forecast inaccuracy. When the normal flow of supply chain activities is interrupted, companies may experience financial loss, cost increases, market share declines, customer defection and damage to the brand. These impacts can be long-lasting: According to research conducted by Accenture, significant supply chain disruptions have been found to cut the share price of impacted companies by seven percent, on average.
and down rapidly as market conditions change. A more flexible supply chain allows them to both reduce risk and preserve capital. It also puts them at a competitive advantage when an event occurs: They can quickly redirect resources and shift to alternate strategies and tactics to keep materials and products flowing while competitors are scrambling for capacity.
One U.S.-based computer brand, for example, has arranged to completely bypass its distribution network in the event of a significant supply chain disruption by shipping laptops directly from its Chinese contract manufacturer to individual U.S. customers via overnight parcel delivery.