The New Supply Chain Normal: Balancing Sustainability, Risk Management and Resiliency
It’s hard to believe the COVID-19 pandemic began four years ago. It seems like it was only yesterday when factories shut down, key ports were jammed up and international trade ground to a crawl. Without question, COVID dealt global supply chain networks a devastating blow.
Emerging from the darkest days of the pandemic, the global supply chain landscape has undergone a fundamental transformation fueled by a confluence of megatrends like geopolitical instability, climate change and technological advancements. In this “new normal,” overall production numbers and delivery schedules seem to be nearing pre-COVID levels. However, disruption to supply chains will likely become a permanent fixture.
Moving forward, businesses must reevaluate their supply chain strategy and adopt one that minimizes disruption by placing equal focus on sustainability, risk management, and resiliency.
Supply chain sustainability is a strategic decision a business makes to achieve its current needs without negatively impacting the needs of future generations. This includes the sustainable sourcing, production, packaging and optimized delivery of products with the goal of creating a more responsible and future-proof supply chain that benefits all stakeholders. A truly sustainable supply chain will balance environmental, social, and economic considerations.
Geared toward protecting the environment from potential harm caused by supply chain activities such as production, storage, packaging and transportation, environmental responsibility considers the ecological aspect of supply chain operations.
Do you or your suppliers have the ability to measure and monitor carbon emissions? Is there a greenhouse gas emissions reduction plan in place? Does the energy you use come from renewable sources? These are the questions that should be asked. Environmental responsibility begins with minimizing resource consumption—including the reduction of energy use and the conservation of water throughout the supply chain—while combating climate change through the use of green energy sources and carbon offsetting initiatives.
A business that practices social responsibility treats every person in the supply chain with respect, dignity and equality. This includes employees, customers and vendors. Doing so means following ethical labor practices such as ensuring fair wages and safe working conditions while promoting diversity and equal opportunities within the workforce and throughout the entire supplier network.
Additionally, there should be strong consideration for how a business contributes to the community in which it operates. In recent years, there has been an increasing expectation that companies support local communities beyond the scope of traditional community outreach initiatives.
The economic component of supply chain sustainability refers to the financial impact a business has on its employees, suppliers, customers and shareholders. It involves the development of safeguards to secure profits to serve all stakeholders without compromising the environment and the community.
It’s important if not essential for businesses to maintain financial stability. For example, investing in unstable ventures can be costly and detrimental—not just to the business, but also to all entities across the entire supply chain.
Businesses that practice economic responsibility will utilize resources efficiently to minimize costs and waste while building strong, collaborative partnerships with suppliers and other stakeholders for mutual benefit and shared success.
For today’s supply chain, risk management has never been more important. A single disruption, such as the Suez Canal bottleneck, can cost millions if not billions of dollars. Another example is the semiconductor shortage. One warehouse fire caused a cascading disruption that affected the production of everything from computers and cars to phones, gaming systems and household appliances, just to name a few.
Risk management in this context is a means of developing a strategy to identify, assess and mitigate risk across an entire supply chain. The goal is to create a consistent framework for businesses to become more resilient to disruption and uncertainty.
It’s important to recognize potential internal and external risks that can impact the supply chain. Start by focusing on those risks that are known, which can be identified, measured and managed. For example, what is the likelihood of a supplier going bankrupt? You can determine this by looking at its financial history. With this information, it’s possible to quantify the impact it would have on the business. Additional risks to consider include geopolitical issues, demand fluctuations, technical disruptions and regulatory changes.
Ensure that supply chain teams constantly address risk, whether generated internally or externally. Additionally, organizational risk experts such as corporate enterprise risk teams can provide risk reporting insights.
The assessment phase involves estimating the potential impacts of an identified risk. This allows businesses to identify the products and supply chain nodes with the greatest failure potential and prioritize resources to minimize the likelihood of an event.
Assessment is vitally important to focus the supply chain risk management strategy and mitigation efforts and on what’s most important and what will have the largest impact. To make this determination, consider the following: number of customers that will be affected, damage to brand and reputation, total time to recover from disruption and the number of qualified alternate suppliers available (if relevant).
Risk mitigation involves the development of strategies and actions to reduce or eliminate the potential impact of an identified and assessed risk. Consider developing continuity plans, implementing flexible sourcing and logistics strategies and creating buffers such as excess capacity and inventory. These proven measures have been crucial for helping businesses mitigate risks and ensure their supply chain can overcome disruptions.
Supply chain risk management is a 24/7 process. Risk monitoring ensures that the supply chain is continuously checked for changes in risk factors and external conditions, enabling the business to review the effectiveness of risk mitigation strategies and update mitigation plans as needed.
By implementing these risk management initiatives, businesses can proactively minimize supply chain disruptions—and realize the full potential of their supply chain strategies.
In the new normal, a lot of businesses will need to rewrite their supply chain playbook, with special attention to the section on supply chain resiliency. The reason being that prior to the COVID pandemic, businesses experienced maybe a one- or two-month disruption every three to four years or so. During and since the pandemic, however, disruptions have occurred at an increased rate due to a number of factors including changing consumer behaviors, geopolitical instability and global supply chains that have become more complex.
Supply change resiliency is a company’s ability to anticipate, adapt to and quickly recover from supply change disruptions while maintaining continuous business operations. Much easier said than done, this involves having a flexible contingency plan in place. But even better, a supply chain in the new normal will have the ability to forecast and anticipate disruptions with the ultimate goal of complete avoidance altogether. Businesses working to reach this level of resiliency may want to consider the following strategies:
Embrace Big Data and Advanced Technology
Businesses can achieve substantial improvements in supply chain resiliency by understanding and leveraging large amounts of data from both internal and external sources. A growing number of businesses use control towers to organize this data into easy-to-understand formats, helping them monitor and identify potential threats to the supply chain. Similarly, supply chain managers that employ digital supply chain technologies such as machine learning and artificial intelligence can gain real-time insights that help them respond rapidly to potential disruptions.
Optimize Production and Increase Resiliency Through Supply Chain Planning
Essential to achieving resiliency, strategic supply chain planning coordinates all elements of the supply chain and enhances visibility and agility. This helps businesses improve their understanding of supply and demand requirements while promoting production efficiency and minimizing the potential damage of supply chain disruptions.
“Don’t place all your eggs in one basket” is basically the logic behind this strategy. For example, a supply chain is vulnerable to disruption when it relies on a single source for raw materials. What if the supplier shuts down operations? Another potentially disruptive event can occur when a business has an abundance of suppliers in one geographic region. A single weather event or a natural disaster can wreak havoc on its supply chain. The obvious alternative is to diversify suppliers so that one slowdown doesn’t interrupt operations.
Supply Chain Optimism for 2024 and Beyond
Today’s global supply chain business is more exciting and challenging than ever. Even the most well-managed and stable supply chains are subject to game-changing volatility and disruption without notice. Looking on the bright side, supply chain professionals have faced mighty challenges in the past and persevered. There’s good reason to believe we’ll experience the same result when the next major disruption hits. Moving forward in 2024, we have the knowledge, the strategies and the sheer determination to achieve the highest possible levels of success in the new normal.
Jagan Reddy brings 25+ years of supply chain solution strategy, business transformation and P&L management experience to his position as co-founder partner and managing partner of Netlogistik USA. Recognized across the supply chain solutions industry for customer value creation and thought leadership, he takes pride in helping businesses understand the key influencing factors driving the latest industry trends while delivering crucial insight and guidance to help them stay ahead of the curve. www.netlogistik.com
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