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.

According to research by Accenture and MIT, companies that are more dynamic in responding to supply chain anomalies are as much as 75 percent more profitable than their less adaptive competitors.³

Turning to 3PLs

Many forward-thinking companies are leveraging their strong relationships with third-party logistics providers to design and deliver flexible, resilient supply chains.

Global 3PLs are often better equipped to accommodate dynamic demand in supply chain activity because they can balance this demand across their wide array of customers as well as through a roster of partners. This creates a network approach, in which supply chain assets and services are seen as variable rather than fixed costs, consumed as needed. Demand can be easily shifted and scaled within the network.

For example, volatility in market growth rates and the resulting difficulty in producing high-confidence forecasts in Central and Northern Europe are straining the ability of one consumer goods manufacturer’s fragmented supply chain network to perform. This is particularly true during seasonal peak periods, when capacity needs can increase as much as 300 percent.

Based on an analysis of the company’s demand projections, service needs, and cost-reduction requirements, DHL and the client are working toward a new redefined supply chain network of strategically located, right-sized DCs throughout Europe. This approach will enable them to rapidly respond to trends and disruptions by dynamically shifting fulfillment among these facilities.

Best practices in building resiliency also include mapping the supply chain to identify the risks and develop alternatives to ensure capacity, then continually monitoring conditions via a control tower to identify early signs of disruption or fluctuation in demand, risk or scope. Such services are offered via DHL’s Resilience360 tool. “It’s more proactive,” says Tobias Larsson, Director and Head of Resilience360 DHL Customer Solutions & Innovation. “Using this tool and skilled staff, you can save one to four days after an incident in mitigating the impact” compared with companies without such measures in place.

Lean supply chains deliver critical efficiency and cost savings, but world class supply chain operators have learned that in today’s more volatile conditions, lean must be balanced with resilient. True supply chain resiliency enables growth and competitive advantage – not just disruption avoidance and mitigation. To balance lean with resilient, these firms are leveraging global 3PLs to design and deliver the redundancy, contingent scale and capacity critical to thriving in today’s more volatile global conditions.

¹ Building Resilience in Supply Chains, World Economic Forum in Collaboration with Accenture, January 2013 p9
² Building Resilience in Supply Chains, World Economic Forum in Collaboration with Accenture, January 2013 p7
³ Preparing for the unpredictable, Accenture, 2012 p3

Published: February 2016

Source: Supply Chain Insights
Photo: DHL