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Planning for Supply Chain Risks Abound

Planning for Supply...
In the wake of recent drone and missile attacks targeting commercial shipping in the Red Sea, coupled with the consequential decisions by industry giants Maersk and Hapag-Lloyd to halt shipping through one of the world's busiest lanes, the global supply chain is thrust into a heightened awareness of the pervasive risks. This scenario prompts a crucial question: How can global supply chains move beyond reactive responses, akin to playing Whack-a-Mole with emerging threats, and instead formulate enduring strategies to navigate the evolving landscape of today's uncertainties?

The Ever-Present Threats

In the aftermath of the pandemic-induced disruptions to global supply chains, the return to a semblance of normalcy remains elusive. In fact, the vulnerabilities exposed by supply chain disruptions appear to now be exploited by malicious actors, who seek to capitalize on the detrimental economic effects of disrupting major trade lanes. Now a Suez Canal blockage can be engineered with a few drones.

This persistent threat underscores the critical importance of robust supply chain planning, precise execution, and effective risk management, especially as businesses navigate the uncertainties of the ever-evolving landscape in 2024. A recent McKinsey survey emphasizes the gravity of the situation, with 44 percent of respondents facing significant challenges in their supply chain footprint, necessitating impactful changes. Almost half (49%) acknowledged that disruptions had led to major planning challenges, highlighting the imperative for proactive measures. And this survey was taken before this week’s news.

Transformations in Sourcing

As global supply chains grapple with escalating challenges such as pandemics, political uncertainty, and the impact of climate change (exemplified by events like those at the Panama Canal), the ongoing shift towards onshoring, nearshoring, and friendshoring appears to be a lasting trend. Beyond traditional risk-hedging methods, like bolstering inventory buffers and adopting redundant dual-sourcing strategies for critical raw materials, a significant and enduring transformation is unfolding—a move towards sourcing inputs from suppliers in closer proximity to production sites.

This shift, however, entails a lengthy implementation period, highlighting the commitment companies demonstrate in overhauling their fundamental sourcing strategies. The diversification of independent regional supply networks transcends mere risk mitigation; it holds the potential to simultaneously optimize costs, reduce emissions, and shorten lead times.

Amid a multitude of factors—including wage inflation, trade tariffs, subsidies, and fluctuating freight rates—companies are now quantifying and factoring in all associated costs and risks linked to offshoring. This meticulous evaluation has redirected attention away from China, with a growing inclination towards countries like Mexico and Vietnam. Nevertheless, completely decoupling from China remains a challenging feat. China continues to be the primary global supplier for numerous raw materials, as well as tier 2 and tier 3 suppliers. Consequently, the term "De-risking" aptly describes this strategic approach, emphasizing the nuanced process of reducing risks without entirely severing ties—a more realistic depiction of contemporary supply chain strategies.

The Next Phase: Supply Chain Planning

As supply chain visibility solutions have become widespread in recent years, the insights and technological advancements they offer have brought a fresh understanding of the true costs associated with disruptions. The upcoming phase in supply chain digitization will center around supply chain planning. The McKinsey survey indicates that 76 percent of respondents utilize advanced planning and scheduling (APS) systems to align supply and demand in intricate networks.

Despite the widespread adoption of these systems, the survey highlights significant room for improvement, with low adoption and rollout rates within organizations. Manual workarounds, particularly the reliance on spreadsheets and other time-consuming, error-prone methods, remain substantial in the planning process.

Final thoughts

In conclusion, it's evident that supply chain disruptions are a persistent challenge. The critical question that arises is: How do we address this ongoing reality? Reflecting on past experiences, one crucial insight emerges—effective strategies extend beyond merely reacting to immediate risks. Good data should serve not only as an alert system for immediate challenges but also as a foundation for planning long-term strategies well in advance.

This is the crux of the matter, where the focus needs to shift towards supply chain digitization. As we move forward, professionals in the industry should prioritize leveraging advanced digital solutions and technologies to enhance visibility, streamline operations, and fortify their supply chains against the uncertainties that lie ahead.


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