Building resilience as part of a “prepared for any eventuality” approach is not only the best defense against supply chain disruptions. Global companies that correctly implement this strategy can prevent multi-million dollar losses and enjoy a competitive advantage across the entire organization. This is one of the key conclusions presented in the latest DHL “InsightOn” report dedicated to risk management and supply chain resilience.
The supply chain has become an unintended consequence of the two most significant trends of recent decades: globalization and lean manufacturing. The report reveals that in 2015, 74% of surveyed companies experienced supply chain disruptions due to armed conflicts in the Middle East, catastrophic fires at the Chinese port of Tianjin, protest actions at US ports, and global-scale disasters that made 2015 a difficult year for global supply chains. The average value of losses caused by supply chain disruptions between 2000 and 2010 amounted to $115 billion annually, reaching $380 billion in 2011. It is projected that this cost will be even higher in 2015. Retailer losses due to delays in the operation of US ports are currently estimated at $7 billion.
– The modern economy functions based on global supply chains, but increasing distances and associated difficulties entail new types of threats, ranging from natural (or man-made) disasters, through climate change, socio-political and economic factors, to wars, strikes, and crime. Every company operating based on complex supply chains requires an improvement in the risk management process, and “InsightOn” contains the conclusions and methodologies needed to support companies in developing smarter strategies. The goal is to build resilient supply chains, i.e., those that will provide companies with an additional competitive advantage – says Bill Meahl, Chief Commercial Officer at DHL.
Resilience increases competitiveness
The latest “InsightOn: Risk & Resilience” report by DHL states that a company with a solid focus on risk management is much more likely to survive in today’s complex world. By integrating risk management into the procurement process, adopting a collaborative approach, and creating new partnerships, companies can build robust and resilient supply networks. As with risk reduction, new tools and techniques for supply chain risk management generate measurable benefits. Resilient supply chains are characterized by flexibility, which allows companies to take full advantage of opportunities that arise, e.g., fulfilling deliveries when competitors cannot, or increasing/decreasing production and supply in line with rising/falling demand or raw material prices.
The report also points out that too many companies maintain their focus on efficiency and cost reduction while ignoring the associated risks, such as exposure to disruptions. For example, companies operating in many industries keep minimal buffer stocks in their warehouses to reduce fixed costs, while realizing that even the smallest supply chain disruption (e.g., due to a fire at a plant producing a single component) can lead to a global production halt. A resilient supply chain, however, enables a 14 percent reduction in buffer stocks while ensuring high resistance to disruptions.
Protecting reputation
Quality issues are characterized by low detectability in the supply chain and extremely rapid escalation into threats to a company’s reputation. The dynamic development of the digital communications industry and the ever-increasing interdependence of companies, products, and supply chains also contribute to the growth of cyber-related risks. In a situation where various sectors must face common threats of a unique nature, “InsightOn” focuses on strategic industries, challenges facing supply chains, and strategies for mitigating the effects associated with such actions.
• Automotive, energy, engineering, and manufacturing: industries susceptible to natural disasters, lack of component and part production, and increasing levels of compliance. Resilience-based solutions include: advanced risk management, greater transparency, and central control elements for crisis response methods, various modes of transport balancing speed and cost.
• Life sciences, healthcare, and technology: industries susceptible to low numbers of suppliers, quality issues turning into problems that threaten a company’s reputation (temperature control system failure, cybercrime, counterfeiting/theft). Resilience-based solutions include: total cost-based approach, real-time data transparency, forecasting analysis, collaboration involving customers.
– The general trend of focusing on just-in-time deliveries, minimizing warehouse stocks, and maximizing supply chain volumes, aimed at utilizing raw materials and suppliers in remote regions of the world, promotes vulnerable supply chains – says Tobias Larsson, Resilience360 Project Manager in the Customer Solutions & Innovation department. – As a result, a number of companies operating, for example, in the automotive, technology, and manufacturing industries must use risk management strategies and detailed network threat analyses.
Increasing transparency is crucial
Many complex global supply chains lack transparency; companies are unaware of where the source of risk lies, how to manage it, or how to mitigate it. According to the report, transparency across the entire supply chain is crucial for companies’ understanding of threats and their ability to respond quickly in crisis situations. By publishing the report cited here, DHL is launching its latest solution, the Supply Chain Risk Exposure Index, a tool supporting the company in building a comprehensive picture that takes into account various risk categories and provides an easily accessible overview of all threats broken down by detailed data for specific locations. This type of methodology can be used to develop future supply chain risk management strategies and to support total cost analyses in comparable sourcing decisions.
Maintaining transparency throughout the supply chain is critical for the advanced risk management process, but it is also a major challenge for companies. Therefore, DHL has developed Resilience360 – a tool based on cloud-delivered services, covering three pillars: continuous assessment of supply chain risk and resilience, real-time event monitoring, and dedicated logistics process control towers, enabling active response to events and business continuity management.
The “InsightOn: Risk & Resilience” report contains conclusions from leading advisors and specialists in fields such as engineering, risk and intelligence analysis, crisis and business continuity management, as well as economics and logistics.