In a turbulent landscape of energy crises, volatility and inflation, resilience will be a defining factor for supply chains and logistics in the coming years. As organisations go through this resilience journey, disruption and diversification will play a role as technology and sustainability stand out as dominant trends.
It’s a landscape rich with opportunity, but not without risk. Drawing on research from our recent supply chain survey and working in conjunction with Professor Omera Khan, Founder and Director of OQK Associates Ltd and global thought leader in the sphere of supply chain risk management, we’ve put together a four-part series exploring supply chain risk in 2024.
Disruption requires resilience
Disruption is nothing new in supply chain management, but the frequency and severity of the disruptions experienced since 2020 have been unprecedented. Our recent Transformational Leadership survey demonstrated this by revealing that 25% of over 800 UK senior leaders identified supply chain instability as a key challenge they are currently facing.
The pandemic revealed flaws in prevailing supply models and highlighted the reliance on globalised networks, problems that were then exacerbated by the subsequent geopolitical tensions across the world.
It’s unsurprising, therefore, that a quarter of respondents to our recent Supply Chain survey believe that geopolitics will be the single factor to have the most impact on their end-to-end supply chains in the next year, with a further one in 10 citing global trade.
Responsiveness is now a business imperative, and it’s those that are best able to mitigate and manage disruption that will succeed. “Resilience, in this instance, will be the ability to meet demand, regardless of the global landscape,” explains Omera Khan.
However, that is easier said than done. Almost two-thirds of respondents think that achieving supply chain resilience is – and will remain in the coming years – one of the major challenges facing their organisations.
“Accounting for every possible risk factor can be short-termist and potentially limitless,” she continues. “We know that disruption is a constant, so building capacities and capabilities to support resilience is the right way forward. Resilience gives you the ability to recreate, retrieve, or return to capacities or capabilities prior to a disruption, irrespective of the disruption. In recent years, organisations that have prioritised flexibility and redundancy have demonstrated, and benefited from, this kind of resilience.”
Flexibility and redundancy
Speaking with our network, 85% agree that, as a result of the pandemic and recent geopolitical and macroeconomic conditions, companies will lessen their focus on sourcing from the lowest-cost supplier and place greater emphasis on a supplier’s ability to provide a more resilient and flexible process.
And it’s not just flexibility in suppliers that organisations are looking for to shore up the supply chain. Flexibility can and will take many forms, including: investments in resources that can be reused or reconfigured to serve different purposes; diversifying supply; and taking a more sustainable approach.
“The primary aim is to ensure continuity regardless of scenario,” says Omera Khan. “We know that disruption is a constant and that risks abound. Building the ability to ensure continuity through flexibility and redundancy is the priority.”
Budgets are tightening up in the wake of the pandemic and the realisation has hit organisations that redundancy equals money. “The trick is knowing where we need redundancy,” she continues. “And that’s going to be determined by companies themselves. I think in some ways we are actually relearning what is good supply chain management.”
Spreading the risk
The structural inflexibility in supply chains today needs addressing – and quickly. The reliance on globalisation, not to mention just-in-time manufacturing, can and does put supply chains at risk. After all, when companies keep minimal inventory and rely on timely deliveries or a small number of sources for critical components, they are vulnerable to any sort of disruption. Plus, global trade has choke points – ones that are vital due to limited alternatives – which makes them a risk. And these risks are compounded when organisations don’t have sufficiently diversified supply chains.
So, will the march towards globalisation slow down? After all, in the wake of the pandemic, many organisations have been bringing supply closer to their end markets. Encouragingly, many have also been diversifying their hubs and routes and relying less on single-source models as they look to safeguard against disruptions.
“The move to build resilience through re-shoring and nearshoring we’ve been seeing was a necessary response to the various upheavals, but it’s unlikely to sound the death knell for globalisation – it will just look different,” says Omera Khan.
“We can expect to see more organisations diversifying their networks and supply bases, and to regionalise or near-shore as a means of building resilience and agility. As consumers demand and expect more, getting closer to them will be both a competitive advantage and operational necessity. This realignment will lead to both a shortening of supply chains (and less fragmentation), a wider distribution of economic activities, and a rebalancing of networks toward emerging and growing markets. It’s a natural reaction to the volatility.”
What is clear is that this disruption in supply chains isn’t going away any time soon. There is now more impetus than ever for organisations to assess their processes to create flexible and resilient supply chains that will ensure continuity regardless of the risks they face.
The use of technology and pursuit of sustainability are two other major factors towards building resilience into today’s supply chain. Read more in the next article in the series.
