Preparing for the Next Big Supply Chain Disruption
Before we can prepare for what’s next, we first need to understand the past.
The importance of supply chains pre-dates us by as much as two and a half millennia! Ancient philosophers and tacticians (like Homer and Sun Tzu) wrote about “supplies” and “logistics” and how those impact military campaigns, political aspirations, and other outcomes.
Disruptions in the supply chain are not uncommon. In fact, in military campaigns, these disruptions are caused by an opposing enemy’s planned activities and have the full intent of causing a disruption. Whereas others are a result of unplanned activities, cyclical events, or part of classical “black-swan” events. The impact that these disruptions have can range from being significant to catastrophic.
Due to the push toward mass globalization of supply chains back in the 90’s to late 2000’s, we’ve begun to see that disruptions to supply chains have increased in frequency and severity. We continued to compound those issues as the complexity and length of supply chains increased. As a result, the timelines and efforts required to respond to various supply chain disruptions (and to take corrective actions) has multiplied.
If history has taught us anything, it’s that we should be planning for more frequent disruptions as we continue to sustain our growing economies and drive more complexity into supply chains. In 2021 alone, we experienced a drastic increase in the quantity and type of events that caused supply chain disruptions on a global scale.
2021 Supply Chain Disruptions:
We saw ongoing effects from the Covid surge in India which impacted raw materials and manufacturing capacity across the globe.
The southern states in the US experienced unprecedented cold weather patterns that slowed over-the-road freight movements and drove latency in transportation and negatively impacted OTIF
The Ever-Given freightliner created a 6-day stoppage in the Suez Canal, forcing some time-sensitive shipments to re-route, which added thousands of miles to their original routes
Covid safety measures dramatically reduced throughput in the Yantian port in Shenzhen, China, which forms a part of the world’s third busiest shipping gateway.
Union Pacific and other rail carriers were forced to pause rail services from the West Coast to Chicago as rail-ramp congestion unexpectedly impacted inland terminal operations
More frequent, severe wildfires impacted California's south-to-north logistical networks and caused route slowdowns (increased transit times)
Chinese authorities shut down a key shipping terminal (Meishan) in Ningbo-Zhoushan port after a single worker was confirmed to have Covid
Air cargo capacity out of Shang-Hai was dramatically reduced after strict covid measures were enacted and led to strains on already-limited air cargo capacity out of the country
Hurricane Ida disrupted freight movements throughout the south-central US states after making landfall in the gulf coast as Category 4 hurricane
Brands with high exposure to suppliers from Vietnam experienced port delays, canceled orders, and slow capacity recovery after lifting of Covid restrictions.
It’s 2022 and we have another supply chain disruption just around the corner. This week’s news has been consumed by the Russian invasion of the Ukraine, which will certainly have a direct impact on critical raw materials that are used in manufacturing components around the world.
Both Ukraine and Russia are key sources for neon gas and palladium, both of which are needed in the manufacturing process of semiconductors. According to research firm Techcet, the U.S. neon supply “is almost entirely from the Ukraine and Russia,” while Russia is also a “key supplier” of palladium and constitutes about 33 percent of the worldwide supply. Russia is also a source of C4F6 which U.S. suppliers buy and purify for use in advanced node logic device etching and advanced lithography processes for chip production.
While the short term outlook on neon and palladium supply may not appear grim, we can likely predict the medium and long term outlook as being negatively impacted. Without sufficient materials, the manufacturing of chips could slow and the companies that design new and improved semiconductor products (both established producers and startups) could again find themselves contributing to a chip shortage.
For the smaller or startup semiconductor firms, they could find themselves becoming less attractive to capital investment since their new products may not have an opportunity to be produced in the near term. This could impact the resurgence of semiconductor manufacturing in North America. We should definitely classify this effect as potentially disruptive.
Related Blog: Supply Chain Issues: Chip Shortage Whiplash
But the impact of this conflict will most likely extend beyond that of the silicon based industries. Russia’s invasion of Ukraine is driving new troubles onto the world’s already beaten-up supply chains. The fighting has forced closures of car factories in Europe that rely on Ukraine manufactured components. It has also negatively impacted supplies for the steel industry as far out as Asia Pacific and has shuttered air routes and land routes that became essential with the onset of the pandemic. We are likely to see both nation’s commodity exports slow dramatically, inciting a spike in the price of oil, natural gas, wheat, sunflower oil, and related commodities.
How Can We Mitigate Future Disruptions and Incorporate Strategies That Balance Service, Cost, Capital, and Risk?
Here are some recommendations to get you started:
Gain a better understanding of your organization’s objectives for service, operating costs, capital investments, shareholder value, and risk. Scrutinize how your supply chain structures impact those areas. Keep in mind, this can be a daunting task and may require intense data efforts and analysis. But in the short and long term, the effort is almost always justified by the results.
Establish a process for acquiring, consuming, and analyzing supply chain data and risk data. Develop a reusable method for rapidly assessing this data along with any leading indicators that suggest future disruptions to your supply chain. It’s best to develop this function as a repeatable process or a workflow that can be leveraged by anyone in your organization.
Develop a culture of preparedness, proactiveness, and design thinking, with optionality as your mindset.
Preparedness and proactiveness are very symbiotic. Corporate culture should not only reward employees for being prepared and taking action without having to be directed, it should also celebrate achievement and allow for failure, for collaboration, and for innovation in ways that keeps everyone engaged, committed, and focused on positive actions and outcomes.
Having a mindset of optionality improves your ability to respond to change and to unplanned events and helps you navigate difficult events without heightened stress. Optionality can be a challenge with larger organizations that implicitly have more process and structure and whose size tends to limit opportunities to have intrinsic optionality, but finding the ability to pivot on strategy and to be agile generates a framework for optionality. Regardless of the size of your enterprise, optionality and agility are crucial to surviving in today’s challenging business environment.
Identify a cost-effective technology approach that can better enable your supply chain teams to evaluate supply chain risk and to develop supply chain scenarios and mitigation tactics that incorporate optionality.
25 years ago, supply chain practitioners relied on the available technology of the day, which was mostly optimization based. That approach was often focused on generating results with the single-minded objective of lowering cost, but without factoring in risk. This approach frequently generated rigid and/or brittle supply chain structures that were predisposed to break when disruptions occurred. With the advent of modern cloud architecture, improved software, enhanced data security, and real-time availability of cloud-based computing resources (hyperscale) we can now use a framework of design-thinking where optimization, simulation, and risk analysis all occur concurrently and at scale. We’ll help onboard you with the latest cutting-edge tech on the market.
Understand the strengths and weaknesses of your current supply chain structures and how risk events will impact the current and future state of your supply chain. Identify and leverage a supply chain solutions provider that is equipped to quickly evaluate your supply chain needs, understand your current “network models,” and the associated business rules or flow-logic that represents your real-world supply chain. Interested in working with a team of industry experts? We offer professional services that do all the above (and then some).
Rapid changes in global economic and geo-politcal conditions continue to drive changes and upheavals in global production and the distribution of goods. Corporations must think about risk and place a premium on developing supply chain agility through better designs. In fact, these corporations should continuously re-examine their supply chain networks with increased frequency.
New, innovative technology for evaluating and re-designing supply chains makes this easier and provides a modeling construct that can provide deeper representations of business processes, decision logic, and real-world scenarios. By being able to properly gather and analyze this data, we can all build more resilient supply chains that can withstand the next series of supply chain disruptions.
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About the Author:
Oscar is the Senior Vice President of Revenue Operations at Optilogic. He has over 25 years of experience with supply chain solutions that include strategy, design, planning and execution. Oscar recently served as Group Vice President of Sales at MercuryGate and focused on rebuilding the sales and solutions consulting organizations as key pillars to MercuryGate’s growth initiatives. He also served as Vice President of Sales for LLamasoft, Inc.’s manufacturing vertical during its chapter of critical growth and valuation.