How to Build a Resilient Supply Chain
In the last several years, we’ve seen firsthand why a resilient supply chain is vital for any company engaged in international trade. The COVID pandemic has closed down many factories, forcing businesses to look for suppliers elsewhere. Furthermore, the Russo-Ukrainian war has paralyzed Eastern Europe, while the conflict between the USA and Iran has had a similar effect in the Middle East.
Today, many companies are forced to pay exorbitant sums just to get their cargo through. Even with full container load and other optimization tactics, you still must think on your feet every day. Whether we’re talking about air or sea freight, you must consider alternate routes and find ways to hasten delivery.
By building a resilient supply chain, you can ensure the same level of performance under different conditions. The great thing about this methodology is its flexibility, allowing you to adapt to a range of risks, from political unrest and war to port congestion and bad weather. In this article, we’ll go through the best policies that will help you improve your logistics for years to come.
- Diversify Your Suppliers
One of the most dangerous things you can do is become excessively dependent on a single supplier. Even if that company gives you excellent prices, you must create a safety net in case they go out of business. Labor disputes, factory accidents, customs delays, and price fluctuations are just a few things that can permanently ruin your relationship.
Unfortunately, having a backup plan is much easier said than done. You must qualify at least two suppliers that can ensure unobstructed operation. The recommended practice is to find suppliers in different regions so that local risks don’t affect your business.
As you spread your reach and start working with different countries and regions, your operations will inevitably become more complex. Nevertheless, having more options is essential as you don’t want to suffer from disruptions. Management overhead and qualification costs might seem like unnecessary expenses, but they provide a much-needed insurance.
- Create a Multi-Mode Strategy
Similar to choosing your suppliers, you must have a flexible strategy that includes different transportation methods. Companies generally rely on sea freight for most of their deliveries. It is a cost-efficient method that allows businesses to transport just about anything. The only downside is that sea freight presumes much longer waiting times for both sellers and their customers.
Air freight compensates for all the sea freight’s flaws. This is a fast, reliable transportation method that allows your clients to receive goods the same day. As such, it is often used for urgent restocking, critical part delivery, or new product launch. The only issue is that you can’t send that many things, and the price is rather high.
The good news is that you can use both methods interchangeably according to your current needs. For example, startups often use sea freight because it helps them stay competitive financially. They use air freight only when a situation calls for it. On the other hand, airplanes are reliable for luxury goods and other, smaller items that you need to deliver to premium clients.
- Optimize Your Inventory Policies
Lean inventory management is a term that many companies swear by. Its basic premise is that you should keep as little stock as possible, thus avoiding unnecessary expenses. To use this method, you must be able to predict customers’ demand with high accuracy.
The problem with this methodology is that it doesn’t work well in practice. Yes, you might have luck with it for several months until you encounter a catastrophic event that forces you to stock out.
This is why resilient supply chain tactics propose that you always have a safety stock. That doesn’t mean you should keep all your products and materials in the same place. Instead, you should calculate a buffer stock that matters most. For example, you should always have extra best-sellers, high-margin products, and parts with long replacement parts.
Safety stock’s positioning is another major consideration. Ideally, you should have your priority products, parts, and materials close to the factory or the end customer. This reduces the travel distance during the spikes. It also minimized the required travel time and having to use several transportation vehicles.
- Improve Supply Chain Visibility
One of the hardest things in logistics is predicting adverse events that could delay your shipment. In most cases, businesses realize the cargo is late only after a few hours or even days have passed. At this point, there’s little you can do, resulting in financial and reputation damage.
The best way to take a proactive stance is by monitoring port and airport conditions, carrier performance, shipment status, and production schedules. Knowing what’s happening with the vessel allows you to send cargo by plane, update the delivery status, or contact a supplier near the customer.
Nowadays, most logistics companies use digital, AI-powered visibility technology that streamlines all these procedures. This software leverages data from port authorities, freight forwarders, and carriers, ensuring you receive new information in real time. While some of these programs might be expensive, they beat the damage caused by delays.
- Document Your Contingency Plans
Of course, introducing all these policies is irrelevant if you can’t share the information with the entire team. Proactive logistics businesses have comprehensive contingency plans that list secondary suppliers, plan for alternative cargo-forwarding models, and prioritize SKUs.
We recommend that you stay on top of the latest practices and software so you can easily automate the entire process. Creating company-wide instruction also helps, while periodic reports can evaluate how you behaved during different, unpredictable events. Make sure you share access with the right people, and assign roles for different duties.
The Future of Resilient Supply Chains
In the future, companies will use various AI-driven programs to simplify their supply chains. These programs accrue valuable data from various sources and update changes in real time. Given the dynamic nature of the logistics industry, this would allow you to quickly address issues in the field.
