As supply chain complexity grows and the number of unforeseeable disruptions increases, it is essential for businesses to develop a risk management strategy to address future disruptions. These strategies can help organizations identify potential risks and vulnerabilities in their supply chains and develop plans to mitigate those risks before they become major problems. Unfortunately, despite facing significant supply chain disruptions in recent years, many organizations remain unprepared for future risks.
A recent survey by our digital network at Hubs found that approximately 30% of respondents had not taken any steps to improve the resilience of their supply chain. This is surprising given that 76.6% of surveyed companies experienced disruptions caused by external factors in 2022. More needs to be done to ensure that businesses can withstand future supply chain disruptions.
For organizations looking to build a resilient supply chain, there are specific elements necessary for preparing for future disruptions, including black swan events:
- Automation
- Geographic diversification
- Agile internal processes
- Supply chain monitoring
- Reserve inventory
Respondents to our survey echoed these solutions when they cited measures they thought would be the most effective in reducing future disruptions, shown below.
1. Automation
Automation can improve supply chains by increasing productivity and efficiency. These processes can mitigate the effects of certain supply chain risks, particularly those related to labor shortages and lockdowns. With robotic process automation, you can digitize and streamline many repetitive manual tasks, reducing supply chain complexity and limiting reliance on manual labor. In 2021, 78% of organizations were already using RPA technologies, while only 6% had no plans to implement it.
Automation is particularly advantageous for its ability to speed up processes that can slow down supply chains if done manually. Request-for-quote (RFQ) and design for manufacturing (DFM) processes can be automated, providing clients with accurate quotes within seconds, rather than days or weeks. Our system, for example, can perform DFM on parts during the submission process, offering manufacturability feedback well ahead of production. This saves time and often simplifies designs. Instead of using traditional, rules-based quoting, we use machine learning algorithms to provide instant quotes once a customer uploads a CAD file. The process compares the customer's design to millions of previously manufactured parts. The algorithms use millions of data points collected on part-specific factors such as geometric complexity, volume, material costs, tolerances, secondary processes, and quality control. These are combined with data points on market-specific factors such as global production capacity and shipping supply and demand.
Automation across the supply chain enables businesses to break down silos and streamline sharing and access of data between supply chain links. Digital process automation (DPA) integrates various platforms used in the supply chain, creating greater efficiency and effectively bridging processes. In turn, this generates greater transparency and visibility, empowering suppliers to monitor those processes and identify inventory needs, as well as supply chain bottlenecks and weaknesses.
2. Geographic Diversification
Diversifying supply chains is essential to building resilience, as many recent events have shown. Pandemic lockdowns in China brought manufacturing to a standstill at various times between 2020 and 2022, while Europe's overreliance on Russia for gas is leading to significant energy shortages. In our latest survey, we found that 41% of companies believe diversifying their supply chain is the best way to avoid disruptions in the future.
With a strong, distributed network of suppliers or potential suppliers, supply chains can adapt in the face of regional disruptions and changing geopolitics. If one geographic region goes down, suppliers in another can step up and fill the gap.
Enabling the greatest number of qualified manufacturers possible is a critical step to diversifying supply chains. The more complex a product is to make, the more specialized a manufacturer must be, which narrows the pool of possible production partners. By simplifying product designs, whether through consolidation or the elimination of complex features, companies will have access to a greater number of potential suppliers.
Building a robust and diverse network of suppliers is a daunting task. However, our approach to distributed manufacturing with digital factories and our network simplifies this process by guaranteeing instant access to vetted suppliers across the Northern Hemisphere. If one geographic area becomes problematic, we can turn to other suppliers on our roster.
We expanded our digital network of local CNC machine shops in the U.S. and Europe, allowing users to choose whether they want to source parts locally or globally. With the Hubs Local service through our digital network, customers can order parts from manufacturers within their custom-clearance borders and enjoy lead times as fast as five days.
Our 2022 survey indicated that 43.7% of participants cited local sourcing as the most effective way to tackle future supply chain disruptions. This highlights the importance of having a diverse network of local suppliers in addition to global ones.
3. Agile Internal Processes
Supply chain resilience is not only about adding flexibility externally, evaluating internal processes is also important. Startups are typically associated with agile processes, with team members working quickly and dynamically to grow business, but big organizations can benefit from agility, too.
By encouraging cross-functionality and greater autonomy across teams, internal processes like product development become faster and more flexible. An agile strategy prioritizes collaboration with clients or stakeholders through every stage of development and uses feedback to ensure continual improvements. This ultimately leads to superior product quality, process transparency, and efficiency. It also reduces risk because the project is being monitored and evaluated at every step.
With an agile methodology, your internal processes will be more flexible and can seamlessly adapt to market changes. For example, 93% of businesses reported that their agile business units fared better than non-agile business units during the pandemic.
4. Supply Chain Monitoring
In the manufacturing industry, tier-one suppliers are companies that supply parts or materials directly to the original equipment manufacturer (OEM). Tier-two suppliers are vendors that provide parts or materials to tier-one vendors, and tier-three suppliers are companies that provide parts or materials to tier-two. Generally, most businesses only monitor tier one and tier two suppliers as they are considered the most important. However, that's not ideal because even tier-three suppliers can play a significant role in the overall supply chain.
Deeper-tier suppliers can cause disruption and delays throughout your entire supply chain. When you closely monitor suppliers across all tiers, you'll be able to spot any warning signs well before disruption happens. However, monitoring your supply chain from the raw materials to the finished product can be a complex and lengthy process. This may explain why this approach was the least popular according to our survey, with only 11.6% of respondents selecting thorough monitoring of supply chain as an effective measure to reduce supply disruption effects.
Thankfully, specialized software tools have simplified the supply chain monitoring process.
Modern companies are exploring emerging technologies such as artificial intelligence (AI) and machine learning (ML) for supply chain optimization. While only 13.1% of surveyed companies reported using AI and ML, a resounding 90.9% of the users found it to be useful. Among them:
- Supply chain mapping to monitor not only tier one and tier two suppliers, but the entire supply chain
- 24/7 supplier monitoring which alerts you to disruptions that may affect your suppliers
- Risk calculation of disruptive events with the potential revenue lost
5. Reserve Inventory
Though it goes against lean manufacturing strategies, building a reserve inventory can improve supply chain resilience substantially. It effectively creates a buffer so that if or when a link in the supply chain fails, there is enough inventory to keep things up and running while the link is reestablished. It is particularly valuable to have reserve inventory for critical parts and parts that could not easily be sourced from alternative suppliers.
Some cite cost as a challenge to the broad adoption of reserve inventory strategies. However, as AI-driven cost analyses and predictions become more popular, supply chain partners will be able to predict the probability and cost of supply chain disruptions more accurately. This can help weigh those against the costs of reinforcing inventories. In other words, intelligent technologies can make supply chains less reactive and more proactive. Predictive models can also help indicate other changes, such as demand drops or surges, which can help keep production and inventory levels in line with changing consumer trends.
Reserve inventory is an important element in long-term supply chain resilience strategies. Companies that rely on a lean manufacturing approach may benefit from incorporating more risk assessment, predictive models, and inventory buffers into their sourcing strategies.
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