The ability of a supply chain network to survive disturbance and reduce the effects on revenues, expenses, and clients is known as supply chain resilience. Resilient supply chains not only assist businesses in adapting quickly and successfully to abrupt changes in the economy, technology, and market, but they also assist businesses in gaining a competitive edge.
Supply chain resilience is becoming a competitive differentiator, but it calls for a major change in how we view teamwork. To facilitate better communication, information exchange, and decision-making, partners must establish an ecosystem of collaboration. For genuine development and true resilience, supply chains must be transparent and agile.
How does a supply chain become resilient?
An integrated, cross-functional strategy that combines all facets of the supply chain is the foundation of the supply chain resiliency. This entails collaborating with numerous partners across diverse functional areas, including as production and distribution, as well as taking into account outside variables like the weather and current political events.
Making a plan to synchronize all of the supply chain’s interconnected components is the first step in developing a resilient supply chain. In order to effectively manage risk across the board, it’s also critical to comprehend the components of each link in that chain—the actions, resources, and information that come together to produce, transport, and sell goods or services—and how they relate to one another.
Instead of pondering how supply chain disruptions can affect your business, it’s crucial to actively plan for potential problems. Reducing reliance on individual vendors during times of crisis is made easier by diversifying suppliers and production partners. While inventory buffers enable your company to keep running even when suppliers are unable to do so because they are out of stock themselves, capacity buffers provide you additional time if there is an unexpected rise in demand.
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Benefits of supply chain resilience
Although it can seem like playing defense is the key, it’s equally important to develop a strong offensive plan. Companies that concentrate on this area and do it successfully gain an automatic competitive advantage from the point of supply chain resiliency. A business that wishes to stay adaptable and operations-focused must keep its eye on sustained success. Balance is the best course of action.
When businesses concentrate on resilience, they are also in a better position to react to negative situations more quickly. But now that it has been digitized, businesses have different needs than they did in the past. In many instances, businesses are having trouble integrating these two aspects of supply chain management.
Role of TRPM in building supply chain resilience
The TRPM framework, which combines technology, risk, process, and mindset, is essential for enhancing supply chain resilience. In order to minimize the impact on operations and ensure customer satisfaction, a supply chain must be able to endure and recover from disruptions like natural catastrophes, geopolitical conflicts, or market changes.
The TRPM framework includes the following four crucial components that strengthen supply chain resilience:
- Technology: The utilization of cutting-edge technology and digital solutions, including blockchain, big data analytics, cloud computing, and the Internet of Things, can improve supply chain visibility, traceability, and real-time monitoring. This makes it possible for supply chain partners to effectively manage inventories, identify risks in advance, and communicate and collaborate.
- Risk management: A thorough risk management approach entails locating possible risks and creating methods for mitigating them. To prevent disruptions and lessen their effects, this entails carrying out risk assessments, creating backup plans, diversifying suppliers and modes of transportation, and putting in place strong security measures.
- Process optimization: The effectiveness, adaptability, and flexibility of supply chain processes should all be prioritized. To respond fast to shifting market conditions or unforeseen occurrences, this entails simplifying procedures, removing bottlenecks, and using agile approaches. The supply chain is kept resilient and capable of adjusting to changing conditions through ongoing process improvement and performance monitoring.
- Culture and Mindset: Establishing an innovative, collaborative, and lifelong learning-oriented mindset is essential for creating a resilient supply chain. It entails building an environment that is flexible, supporting proactive problem-solving, and encouraging cross-functional cooperation among supply chain participants. In managing disruptions and promoting long-term success, a resilient mindset emphasizes the significance of agility, responsiveness, and readiness.
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How TRPM Can Minimize the Impact of Supply Chain Disruptions
According to a 2020 Deloitte study, 85% of firms lacked the capacity to control their third-party risks. These companies performed poorly across numerous dimensions of supply chain management. In terms of third-party risks, their monitoring procedures were equally deficient.
Organizations become exposed to supply chain disruptions in the wake of the Coronavirus pandemic due to underinvestment in TPRM programs. Similarly, when the issue with infant formula, these flaws were exposed.
Modern supply networks are made up of a complicated web of numerous participants, including:
- Vendors
- Suppliers
- Outsourcing associates
- Contractors
- service companies
- 4th parties and many more.
To manage their operations and accomplish their strategic objectives, the majority of firms rely on one or more of these groups. However, third parties also pose a number of threats to the corporate environment, including:
- Financial hazard
- Legal danger
- Compliance danger
- Financial risk
- Operational hazard
- Strategic hazard
- Risk to cybersecurity
Any of these risks could have an effect on a company’s earnings, harm its reputation, and lead to fines from the government or legal action. Third-party risks, which affect supply chains in a broader sense, can cause shortages like those brought on by COVID and the baby formula crisis. To successfully manage and mitigate these risks, organizations need TPRM(Third Party Risk Management). Companies who invest in TPRM are better equipped to handle changes in the supply chain.
Additionally, TPRM offers improved visibility across the whole supply chain, exposes hazards and vulnerabilities in third-party procedures that are current and emerging, provides useful information that businesses can use to take quick action and lessen the effects of disruptions, enhances third-party relationship management and accountability-building reporting and decision-making.
Understanding business resilience and how does it relate to third-party risk management
Business continuity and business resilience refer to an organization’s capacity to respond to incidents of all sizes while maintaining efficient and secure operations. Even if you don’t directly utilize the service that is experiencing the outage, there can be a big impact on your company and your third parties. You may be affected in various ways, including:
- Internal malfunctions and gaps in the capabilities of the operation
- Areas throughout the supply chain are affected by external outages.
- vendor problems exposing your business to supply chain weaknesses
- Changes in operations that have an impact on data collection, storage, and security
- Data belonging to your business is at danger due to compromised vendor data security.
- putting in place a business resilience strategy that enables your company to change
Putting in place a business continuity plan that enables your company to quickly switch web hosting companies or activate a backup to keep applications up, filling any service gaps, and ensuring that crucial safety systems continue to function. In order to effectively mitigate the security concerns raised by potential outages, business resilience must take into account the effects on third parties.
Creating a TPRM-informed business resilience strategy
Do the following when treating third-party risk management (TPRM) as a crucial aspect of your organization’s business resiliency strategy:
- Create and keep BIAs (business impact analysis): In the event that a vendor is compromised, this will enable your business to identify the risk involved.
- The creation of situational questionnaires: It’s critical to know how your vendors are responding in the event of an unanticipated crisis (such as a medical emergency, a natural disaster, or geopolitical unrest) in order to be ready for any incidents that may result from the crisis. This will provide you insight into what your vendors are planning and an opportunity to learn about their own continuity strategy.
- Resilience plans should be included in vendor contracts: Each vendor contract must have a list of business resilience requirements that may be referred to in the event that your vendor encounters a crisis. This is essential to your organization’s resilience plan.
- Vendor classification and risk tolerance assessment: Referencing the overall appetite and tolerance of your organization, classify and rank your vendors according to their level of risk. In order to assess risk across domains, including operational and IT risk, you must understand your internal and external vulnerabilities.
4 Tips for improving supply chain resilience
Once you have a basic idea of how resilient your supply chain is, it’s essential to start putting strategies into practice that will help you achieve your company’s objectives while minimizing risk. Here are a few quick methods for completing this task:
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Recognize the dangers your suppliers offer.
It is very important to know your working partners. Finding the ideal supplier requires time even if many business transactions are conducted via handshake and contract. By evaluating supplier risk, you may increase the resilience of your supply chain. You can assess them based on their creditworthiness, data security, and self-sufficiency. You gain a deeper understanding of the potential hazards they may offer to your operations through this exercise.
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Develop practical plans for unexpected response
Response strategies are crucial yet frequently ignored. Your organization’s suggested line of action in the face of difficulty is described in your response plan. Simply stating that a risk or threat exists is insufficient. Instead, you and your group must be equipped to react to unfavorable circumstances as they arise.
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Make future events and occurrences a priority
When there are numerous immediate requirements, it is extremely simple to put long-term planning on hold. However, you must consider future requirements in order to effectively manage a robust supply chain. Supply chain management is a marathon that everyone wants to be finished quickly. Building a strong foundation is one of the best suggestions for enhancing your efficacy.
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Go digital with your supply chain
You’re probably utterly bored by supply chain digitization. But given the enormous gap between market need and actual implementation, you keep hearing about it. The most crucial instrument you can use to significantly improve supply chain resilience is digitization. It functions by automating processes, establishing consistency, and freeing up your human resources to work on other aspects of your organization.
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Case Studies on Supply Chain Resilience and TPRM
Case Study 1: Walmart
Walmart is one of the largest retailers in the world, and it relies on a complex supply chain to deliver products to its stores. In 2011, a major earthquake and tsunami in Japan disrupted Walmart’s supply chain, causing shortages of some products. Walmart responded by implementing a new TPRM program that helped to improve visibility and resilience in its supply chain. The new program included the following elements:
- Risk assessment: Walmart conducted a risk assessment of its supply chain to identify potential vulnerabilities.
- Contingency planning: Walmart developed contingency plans to address potential disruptions.
- Supplier collaboration: Walmart worked with its suppliers to improve communication and coordination.
- Technology: Walmart implemented new technology to improve visibility and traceability in its supply chain.
As a result of these measures, Walmart was able to recover more quickly from the Japan earthquake and tsunami than it would have been able to without the new TPRM program.
Case Study 2: Apple
Apple is another company that has implemented a TPRM program to improve the resilience of its supply chain. Apple’s TPRM program includes the following elements:
- Risk assessment: Apple conducts regular risk assessments of its supply chain to identify potential vulnerabilities.
- Supplier due diligence: Apple conducts due diligence on its suppliers to ensure that they are meeting its standards for social and environmental responsibility.
- Traceability: Apple tracks the movement of its products through its supply chain to ensure that it can identify and respond to disruptions.
- Disaster recovery planning: Apple has a disaster recovery plan in place to ensure that it can continue to operate in the event of a disruption.
As a result of these measures, Apple has been able to build a more resilient supply chain that is better able to withstand disruptions.
Frequently Asked Questions
What are the 5 pillars of supply chain resilience?
Supply chain resilience has become a critical focus for companies in a globalized world, especially in the aftermath of the COVID-19 pandemic. This concept is built on five key pillars, each addressing a different aspect of risk management and operational efficiency.
- Vulnerability: This pillar assesses a company’s risk exposure by identifying potential bottlenecks and disruptions in the supply chain. It emphasizes the importance of understanding how disruptions like natural disasters or demand-driven stockouts can significantly impact operations.
- Management Culture: This pillar focuses on the role of top management in prioritizing supply chain resilience. It highlights the need for a best-practice approach to measuring resilience, which can be qualitative, quantitative, or a mix of both.
- Procurement: This pillar underscores the importance of strategies such as dual sourcing, supplier audits, and maintaining long-term relationships with key suppliers. Despite these efforts, it acknowledges that a strong vulnerability at first-tier suppliers remains, calling for increased multi-stakeholder dialogue.
- Operations: This pillar discusses internal investments in dual/multiple sourcing within the manufacturing process, risk mitigation inventory, and agility capacity. However, it notes that only a minority of companies manage to align these strategies holistically, indicating room for improvement.
- Demand & Visibility: The final pillar focuses on visibility-related risk mitigation strategies, such as Electronic Data Interchange (EDI) technology or data sharing. It suggests that while many companies have good visibility on their own operations, there is a need for enhanced visibility on the distribution partner or customer side.
How do you measure supply chain resilience?
Supply chain resiliency can be quantified in the following ways:
Collaboration: Effective collaboration within an organization and with external partners can help prevent disruptions. This involves technology integration, supply chain integration, and tools that facilitate collaborative planning.
Forecast Accuracy: The ability to accurately predict changes and disruptions is crucial for resilience. This can be measured by comparing forecasted outcomes with actual results.
Data Velocity and Availability: Quick and widespread access to data allows for faster action in response to changing conditions. This can be assessed by the currency, completeness, and accessibility of data.
Overall Equipment Effectiveness (OEE): A measure of quality, availability, and performance in production, a high OEE score indicates resilience.
What is the difference between supply chain agility and resilience?
Supply chain agility refers to the ability to respond quickly and effectively to changes and disruptions by being flexible, responsive, collaborative, and innovative. It focuses on adapting to new conditions, market shifts, and customer demands.
Supply chain resilience, on the other hand, emphasizes the ability to absorb and recover from disruptions while minimizing negative impacts. It involves proactive risk management, redundancy, continuity planning, information visibility, robust infrastructure, and strong supplier relationships.
Both agility and resilience are essential for a successful supply chain strategy, with agility addressing responsiveness and adaptability, while resilience focuses on risk management and business continuity. Achieving a balance between the two is crucial for maintaining competitiveness in a dynamic business environment.
