By John Ferguson, TBM Consulting CEO and Ken Koenemann, vice president for supply chain & technology with TBM Consulting
Geopolitical tensions, pandemic-related disruptions, and strike actions by workers in key shipping and transportation industries are testing already stressed global supply chains. The cascade of unexpected disruptions, so-called Black Swan events, seen this year serves as a reminder to manufacturers that they should routinely examine their supply chain and address weak links that could slow or halt their ability to fulfill orders.
In recent weeks, a resurgence of COVID and efforts to contain it have slowed the flow of goods from China, the United States’ top trading partner, while a freight-rail strike threatened the movement of goods in the US. The rail strike was averted, but actions by postal workers, transportation, and dock workers have cropped up in the UK. These work actions may hinder the processing of certain orders or the shipment of goods. At the same time, Russia’s invasion of Ukraine has had a dramatic affect on global economic activity: Ukraine supplies the US with ferrous metals and ore and both nations are important sources of wheat exports. Meanwhile, renewed tensions over Taiwan have stoked concerns about disruptions to semiconductor shipments.
A measure of supply chain pressures published by the US Federal Reserve has already heightened uncertainty about the global movement of goods and raw materials. These concerns increased in November due to Chinese delivery times, according to the New York Federal Reserve. While this measure of stress on the global supply chains is dramatically lower from year-ago levels when it vaulted to a record high amid the pandemic, it has ratcheted higher from 2022 lows in recent months.
Implementing a plan to manage unforeseen disruptions Drawing up a plan to manage disruptions and build a more resilient supply chain can involve several steps. A business may want to start by hiring a chief resiliency officer, or CRO, with a mandate to identify critical components needed to produce goods and, if needed, broaden the number of suppliers, and routinely cross-check the manufacturing processes.
Firms should conduct internal audits looking over manufacturing processes to understand which key ingredients are needed to produce finished goods and what may hurt a business’s ability to fulfill client orders. Each component should get a risk score determined by its importance in the manufacturing process.
The goal of an audit should be to determine what raw materials or parts could be impacted by a disruption to rail, air, ship or trucking services. This effort may involve de-risking exposure to regions that, because of geopolitical issues, cannot guarantee the continuous flow of critical components or materials. It can be challenging to determine where a political crisis will flare up, but manufacturers cannot afford to rely on one region, or a supplier based in a region where political uncertainty routinely disrupts supply lines.
Managing risk by broadening the pool of critical suppliers COVID’s lingering threat and a regular flare-up of geopolitical tensions may also prompt manufacturers to rely on suppliers whose facilities are closer to where a product is assembled. In some cases, manufacturers may spurn low-cost suppliers and diversify sources to limit any disruptions in delivering essential parts and raw materials.
Minimizing supply-chain risk may spur some business leaders to shift their reliance on a primary supplier. Maintaining strategic alliances with suppliers is necessary, but counting on one supplier is not a viable solution, especially if the supplier’s facilities are located far from your manufacturing hub. For some, adopting this strategy may be easier said than done.
Healthcare suppliers may be able to readily find a new source of masks or syringes, but pivoting to a new supplier of specialty equipment like a magnetic resonance-imaging machine is not always easy. Often, transitioning to a different supplier or a region can’t be accomplished overnight. Taiwan, for example, is a crucial source of semiconductors that is threatened by tensions with China. In the US, efforts are underway to onshore semiconductor production, but this likely won’t be accomplished overnight.
Making sure your assembly plant or production facility does not go dark also may require some manufacturers to increase inventories of critical parts or commodities. For example, businesses that use plastic pellets or resin may want to build a stockpile of essential materials to manage disruptions.
The latest round of challenges to the global supply chain may fade, but the movement of goods in the global economy is sure to be further tested by a broad range of factors. Manufacturers should incorporate a stress test of their supply chains into their business routines to ensure that they can identify weak links and address them ahead of any unforeseen events. By nature, Black Swan events are not predictable, and each brings its unique challenges, but business leaders should make resiliency a priority to ensure they can continue to manufacture and ship orders.
