The Supply Chain Conundrum: Diversifying for Survival and Strategy
For decades, the global economy has transformed supply chains into a complex web that is overly reliant on constant optimization. The rise of just-in-time manufacturing that keeps goods flowing can be disrupted by just one unexpected event, causing a disastrous ripple effect down entire supply chains – and we’re now seeing an escalation of disruption worldwide. From Covid-19 to unprecedented climate disasters and the war between Russia and Ukraine, global supply chains are under greater duress than ever before.
At this point, the only thing we can be certain of is continued uncertainty. Now is the time for all organizations to accept that the world is changing in irrevocable ways, and supply chains have to change to shore up resilience.
Supply chain diversification is time-consuming, complex and in some cases risky, but time has run out. Being strategic and adopting technologies that can provide deeper insights about the resilience of your organization, vendors and suppliers will limit chaos during the transition, accelerate digital transformation and at the same time allow organizations to focus on third-party ESG concerns, such as preventing modern slavery.
“Normal” needs a new definition
The beginning of the pandemic heralded the arrival of severe uncertainty in the global economy, making it clear that the supply chains we took for granted are more fragile than we wanted to admit. The first lockdowns snarled manufacturing and shipping processes to the point that Americans who were used to a dizzying array of products in every category suddenly couldn’t find basic commodities such as toilet paper.
Despite the instability and panic accompanying this first wave of blows to the supply chain, a good number of experts remained optimistic and the media buzzed with speculation on how to get “back to normal”. As optimism mounted and manufacturing lines began to recover, we were thrown for a loop by the disruption caused by the Evergiven container ship blocking the Suez Canal. Today, we are facing a second supply-strangling pandemic lockdown in Shanghai on one front, and a war shaking the foundations of Europe’s supply chain on the other.
Not even global operations, reach and influence can guarantee resilience to global events of this scale and duration. Volkswagen is one high-profile example of a global company that is struggling to secure critical parts to keep assembly lines going as they make the shift to electric vehicles, and a good example of the need to rethink supply chain structures.
It’s clear that the global supply ecosystem is more vulnerable than many ever realized, and that companies can only defend against unpredictable geopolitical strife by diversifying closer to home.
Inside the struggle to diversify
Chinese manufacturing has come to dominate the globe in recent decades. The pandemic was the first worldwide alarm bell, and the shock from the Ukraine war has been the final call to action. In addition to worries over operations, companies are now contending with consumers who are more aware of and concerned about the ethics of overseas manufacturing. In the United States, more than two-thirds of millennial and Gen Z consumers say at least one aspect of ESG is important to them when forming opinions on companies, and ethical supply chain sourcing with a greater focus on domestic partnerships is a key influence. Organizations must diversify now, or accept growing operational and reputational risk from geopolitical fallout.
Diversification is by no means a simple task. It requires finding suppliers that provide the product you need at the right price and adequate quality, and thoroughly vetting them for risks they introduce to your supply chain. These risks include threats to business continuity, cybersecurity and general resilience, but each organization will have unique risks based on industry and individual factors. The majority of companies don’t have the resources to perform the manual vetting, onboarding and continuous monitoring needed to diversity at scale–and many are still using confusing and inaccessible tools like spreadsheets.
The solution is to adopt a vendor risk management platform that partially automates these tasks, from data collection to reporting. Reliable automation opens the door for more robust insight into how vendors operate, allowing organizations to make better-informed decisions on which companies to partner with, without pouring an unsustainable quantity of resources into human labor.
Embracing digital transformation
Making changes to a supply chain cannot be handled lightly, as it involves altering long-term contracts, right-sizing and making other adjustments with significant impact. The challenge is to diversify while maintaining quality controls and a holistic view of risk, and it comes with the opportunity to execute a full digital transformation.
With supplier and vendor management enhanced by a smart platform, organizations will quickly begin to see the advantages of centralized data, augmented analysis, enhanced cybersecurity risk controls and automation of administrative tasks. The same features that will ease the transition to a highly-diversified supply chain can be applied through nearly all areas of the business, increasing overall resilience and ability to mitigate risks.
Seizing the ESG opportunity
Along with supply chain diversification and digital transformation, improved ESG measures are a must for organizations that want to survive unexpected and ongoing geopolitical upheaval. Supply chain diversification is an ideal place to start, as regulators and investors are placing increasing scrutiny on ESG practices all the way down the chain. This is a natural juncture at which to evaluate vendors old and new on how their own ESG practices cumulatively affect your own metrics. It’s no longer enough to choose suppliers based solely on pricing; companies must consider how suppliers run their businesses.
Does the company vet their employees through a Vendor Code of Conduct? What ESG data do they collect, and how will it integrate with your organization’s ESG tools? Being more selective in the vendor selection process has a higher cost upfront, but makes it less likely for your company to lose money and reputation at the hands of vendors who are harming the environment, have dubious ethics when it comes to labor or have compliance issues of any type.
A smart platform with vendor management will allow organizations to integrate with vendor and supplier ESG metrics to ensure their practices are in line with your goals and commitments.
Strategizing beyond survival
We are facing greater uncertainty than ever before, and the clock is ticking on supply chain diversification. Although it will be a struggle, smart organizations will use this opportunity to accelerate full digital transformation and jump ahead on ESG concerns as well. Current global events should serve as a wake-up call to drop reactionary strategies and leverage technology to look past survival and into proactive models better able to accommodate the unknown.
On-demand webinar: Managing Complexity in Supply Chains: 10 Things to do Right Now