Resiliency Archives - Inbound Logistics

Not So Sweet: Expensive Cocoa’s Lesson on Supply Chain Resilience

Katrina — Fri, 09 Feb 2024 18:31:42 +0000

Cocoa futures are higher than they’ve been in nearly 50 years, making chocolate treats a bit less sweet this Valentine’s Day. Unusually wet weather, caused by El-Nino, has ravaged cocoa crop yields in West Africa, leaving chocolate’s largest manufacturers facing spiraling costs for key ingredients like cocoa beans and cocoa butter.

The trickle-down effect will hit many consumers in the wallet — 92% of Americans plan to share chocolate this Valentine’s Day. It’s the latest example of what can happen if a supply chain isn’t resilient enough.

Disruptions have become the new normal across many sectors. During the pandemic, the supply chain model quickly ballooned as manufacturers created new relationships with suppliers to fulfill orders faster than the competition.

All these new connections and enterprise resource planning (ERP) systems made an unorganized mess that looked like a bowl of spaghetti, with strands that didn’t have precise data flows, leaving companies across the value chain in the dark.

Leading companies are rethinking their strategies from square one — not just how they can consolidate their supply chains, but how they can create resilience and agility so it doesn’t have a ripple effect if, say, cocoa harvests can’t meet demand.

How to build supply chain resilience

Building natural supply chain resilience starts with identifying your weak spots across the whole chain. The effect spreads quickly when a link gets hit by shortages or outages. Whether it’s a supplier capacity crunch, port pile-up, or extreme weather hitting a facility, there’s always a downstream effect. If you can see that disruption with enough advanced notice, you can adjust and minimize its impact.

The solution is more than simply reshoring factories or adding a supplier. Diversity and flexibility are crucial, but you also need integration. Modern digital tools can map upstream and downstream networks while tracking shipments door-to-door. This visibility enables companies to pick up on disruptions faster and coordinate better responses across the ecosystem.

Continuity improves when partners access shared data for scenarios like regional warehousing adjustments or production shifts to alternate sites.

Transparency and accessibility of information require trust and alignment. Establishing operational protocols, security controls, and contingency plans jointly yields better results than trying to figure out how to calm the storm once it has already arrived and determine how it might affect other stakeholders. The more each business applies lessons learned through past disruptions, the better it can harden defenses for the next.

There’s no one-size-fits-all blueprint, but by assessing unique risk exposures, digitally linking networks, and collaboratively addressing vulnerabilities across their chains, companies embed resilience to ride out better stormy operating environments.

What resilience enables

Resilient supply chains allow companies to translate market uncertainties into opportunities rapidly. By implementing predictive analytics across interconnected partner networks, businesses gain integral visibility to turn emerging data into actionable insights. Resilient supply chains also enable greater agility to adjust operations and partnerships to capitalize on market fluctuations.

For example, if cocoa bean supplies fall short of demand for a third consecutive year, it might be time to consider new recipes for Valentine’s Day chocolate hearts. This could reduce the reliance on a specific supplier and enable production to continue without a hefty price hike.

But you don’t have to wait for a disruption to update your operations. Tabletop exercises, stress testing, and scenario planning can help companies understand how their supply chains would respond to different disruptions and allow them to make improvements like diversifying supplier bases, increasing inventory buffers, or building contingency plans.

Regular stress testing allows companies to assess emerging risks and ensure their network is prepared to withstand potential shocks. It helps transform supply chain resilience from a passive goal to an active, ongoing management process.

Since supply chain uncertainty has become the norm across industries, resilience is imperative. Companies must move from fragmented linear structures to integrated ecosystems that embed visibility, flexibility, and collaboration.

Enhancing transparency and agility across supplier and distribution relationships allows disruptions to be detected faster with more coordinated responses. Those still anchored in static modalities risk being upended by mounting instability. Resilience marks the path to navigating and harnessing the new age of compounding change.

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Reducing the Impact of Global Events

apalmisano — Wed, 19 Jul 2023 15:37:12 +0000

Events like Russia’s invasion of Ukraine and a rise in canceled sailings had rippling effects on supply chain resiliency in the United States and throughout the world. Nearly 72% of businesses were hampered in some fashion by global events, finds the 2022 Supply Chain Disruptions Study. Now in 2023, tragic earthquakes in Turkey and Syria are creating the same problems.

To hedge against global setbacks, consider product sourcing diversification and nearshoring. Both strategies can reduce risk by ensuring access to the necessary materials and labor resources.

Let’s take a deeper look at how both strategies not only reduce risk, but also optimize business efficiencies and create resiliency.

Product sourcing diversification. Businesses gravitate toward product sourcing diversification because it’s an effective way to spread their risk. By having multiple suppliers available for the same product, operations can fall back on a different supplier should one be impacted by unforeseen disruptions.

This strategy grew popular during the Trump administration because of tariffs placed on goods imported from China. Many companies were forced to rethink their dependence on trade with China and diversified elsewhere in Asia.

Businesses have looked specifically at India and Vietnam because they can offer the needed products at a cheaper price and lesser risk.

Spreading the risk is a key pillar to supply chain stability. The ability to still acquire necessary products, despite difficulties from events beyond their control, allows businesses to remain stable and trustworthy to their clientele.

Nearshoring. Moving supply chain operations to a country closer to the import destination, which still gives businesses the advantage of cost savings associated with offshore production, is a strategy that’s picking up steam. In an Accenture survey, 94% of companies said they are directly investing in nearshoring or onshoring, and 85% want their factories and material sources to be in the same hemisphere.

It’s easy to see why. Nearshoring not only spreads the risk, but also shortens lead times to result in faster cash-to-cash cycles, reduces inventory carrying costs, and facilitates more efficient visits by quality assurance and purchasing staff.

Nearshoring also helps businesses shift to a more practical “just in case” inventory management strategy, instead of the traditional “just in time” approach to foster better overall resiliency.

Most importantly, reaction time in a global setback is much faster with nearshoring. Being in the same time zone allows for easy communication and collaboration during a crisis.

Mexico is particularly attractive because it offers many more logistics options for moving goods. It’s not limited to ocean and air freight, which can prove to be a big difference during a global setback. Mexico also offers tariff stability due to the U.S., Mexico, Canada Agreement (USMCA).

Supply chain volatility requires businesses to do everything they can on the back end to minimize risk. Product sourcing diversification and nearshoring achieve those objectives and create more efficiencies.

By adopting these strategies, businesses reap the benefits of cost savings associated with overseas production and hedge against global setbacks or unexpected supply chain disruption.n

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Early Amazon Story Explains How to Create Resiliency

Sachin — Fri, 14 Jan 2022 07:00:00 +0000

At the time, Amazon used UPS almost exclusively for deliveries. But because UPS was the only carrier we leaned on, they priced accordingly knowing we had little alternative.

As we neared the annual renegotiation talks, we knew that in order to secure better rates, we had to become less dependent upon a single carrier. We had to become more resilient. For several months, the team was directed to rebuild its outbound shipping technology stack to allow for dynamic carrier selection and manual switching, like a figurative train track switch. That technology hadn’t previously existed because there was no need for it if only using one carrier.

With the technology built, the story goes that the team was directed on an early December day to switch all shipments to go through our new carrier contract, USPS. UPS was to receive no packages for that date.

UPS was alarmed. Their systems went off, bells buzzed, alerts scaled all the way up the ladder until eventually a UPS executive called and asked if Amazon was having technical problems. The reply was a simple, “Nope, just using other carriers to handle volumes you believed we couldn’t shift away from UPS. See you at the negotiations next week. *click*”

That’s a powerful story, but the powerful insight is not in the negotiation theater that played out.

In truth, the real value created through this exercise was greater resiliency added into this specific part of Amazon’s supply chain. By reshaping technology to support multiple delivery partners, we ensured a system with fewer late deliveries, better customer experience, and minimal system downtime or bottlenecks. The added resiliency improving performance year-over-year was a bigger reason for Amazon’s early growth than the renegotiated UPS rates for that year.

One of the best ways to add resiliency to your supply chain is to diversify optionality. Vendors, sources, contracts, technology components—look up and down your supply chain and identify single points of failure, then think through how to diversify your options.

This isn’t necessarily a new or novel idea. The COVID-19 pandemic starting in early 2020 forced every commerce company to re-examine upstream dependencies, like manufacturers or component distributors. I’m still waiting for a new bike I ordered last summer because the manufacturer is delayed getting a certain type of screw from their suppliers.

No, instead the new and novel idea is to understand that diversification and optionality all the way down to eventual order delivery is critical for optimization and margin growth. More importantly, it’s critical to customer experiences and expectations.

Take a moment today to think through which downstream parts of your supply chain are not diversified. You might be surprised which junctures are causing bigger problems than you realize.

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