Although this seemed to be a bit abstruse at the time, at least part of it can be applied to today’s supply chain difficulties. For many of us, the intricacies of the global supply chain were of no concern. For the most part, we needed what we needed, we ordered it, and it arrived when we expected. Everything was fine, until it wasn’t. How could we not know how vulnerable we were?
A study, “
Supply Chain Vulnerability”, produced by Cranfield University School of Management, provides some insight. Some of the issues they found include:
A focus on efficiency rather than effectiveness
In a never-ending search for greater efficiencies and cost savings, inventory reduction as well as just-in-time (JIT) practices were adopted which made companies even more dependent upon their suppliers. As the report states, this system has obvious merit in stable market conditions, but breaks down when instability and volatility become widespread.
The globalization of supply chains
The myriad “buy local” campaigns notwithstanding, the global extension and multi-point strategies have continued to increase dramatically. As the report states “…through offshore sourcing, manufacturing and assembly, supply chains extend from one side of the globe to the other. For example, components may be sourced in Taiwan, sub-assembled in Singapore with final assembly in the USA for sale in world markets”.
The globalization of the supply chain, intended to minimize costs, results in increased risks of disruptions, including extended lead-times. Up until now, the Disney mantra “it’s a small world after all” has been assumed, mistakenly, to be almost literal, driven in no small part by increased international mergers and acquisitions.
Focused factories and centralized distribution
Rather than manufacturing a wide variety of products at multiple sites, cost-savings have been achieved by producing greater volumes of specific products at “focus factories”. Although this lowers production costs, more and more finished product now has to travel further and further. Add to this the trend of centralized distribution hubs, and even minor disruptions can create significant problems. Major disruptions, such as a global pandemic, can cause chaos.
The trend to outsourcing
Outsourcing has gone from a trend to a standard business practice. As such, it allows companies to focus on their core business strengths and farm out those activities that others may do cheaper, better, or faster. Although this makes eminent sense from a cost-savings perspective, it requires companies to relinquish control which creates risk. There’s a reason why it’s called a supply “chain”. It only takes one link to break before the entire system grinds to a halt.
Reduction of the supplier base
While some consolidation may be the result of mergers and acquisitions, many are the product of a further hunt for savings. In fact, there are many instances of “single source” suppliers which only magnify the risk. The supply (or lack) of computer chips is a prime example.
Volatility of demand
Market turbulence and volatility, driven by short life cycles, and technological obsolescence are a constant issue in a forecast driven market with long lead-times and over-the-horizon planning. A global pandemic obviously multiples these risks exponentially.
Other unforeseen issues
The COVID-19 pandemic has not only exposed the vulnerabilities of our global supply chain, but it has also yielded some unpredictable developments.
Due to the existential nature of a deadly disease, many workers have taken the enforced respite as a time of reflection and have not liked what they see. Job fulfillment and the sudden glare of mortality have seen employees reevaluate their jobs and decide to seek something more gratifying, enjoyable, or satisfying. Often referred to as “the great resignation”, 4.3 million Americans quit their jobs in August of this year. A
recent report by CNBC put the rate at 1 in 4.
Steps you can take to reduce risk
- Understand that any changes in business strategy change supply chain risk profiles
- Risk considerations should influence the supply chain design and structure
- Risk management should be based on a high level of supply chain visibility and understanding amongst all entities
- Institute risk identification processes (e.g., product/supplier/ supply chain related)
- Institute risk assessment process (e.g., likelihood vs. impact vs. cost)
- Establish supply chain continuity management and co-ordination processes
- Introduce processes to ensure learning from experiences
It appears that supply chain issues will continue to disrupt businesses well into 2022. However, rest assured that Available Staffing Network has no supply chain issues. ASN is ready to supply your workforce requirements when you need them – no bottlenecks, no delays.
