What is resilience in supply chain management?
Supply chains are diverse and complex, so are the potential risks that could disrupt them. A good supply chain management strategy invests in resilience. Resilience refers to the time it takes supply chains to predict and avoid risk, as well as respond and recover from costly disruptions. 75% of companies experience at least one major supply chain disruption a year.
Supply chains are vulnerable to risk which makes detection time an important metric.
What is the detection time?
Detection time is the time measured from the instant a supply chain disruption is realized to the time the incident takes place. Detection time is a key factor in supply chain resilience. Companies that quickly identify oncoming disruption are more competitive in the market place. Every day, threats occur that could disrupt standard operations and reduce productivity.
Examples of supply chain threats that create disruption:
- Natural disasters
- Market challenges
- Upstream supply risks
- Production problems
- Lack of capacity
- Cargo damage or theft
- Distrust in supplier relationship
A company can’t eliminate every disruption, but proactive thinking and documented processes can minimize negative financial impact from a halt in operations. Companies should never ignore potential risks – they will not go away. Planning will make a big difference between success and failure.
To implement best practices for risk management, ask yourself:
- What threats does your organization face?
- What consequences would those risks have?
- What’s the likelihood the risk would happen?
- If the risk is probable, how do I develop a plan of avoidance?
One approach to overcome disruption is to create a resilient supply chain. The resilient supply chain requires 2 critical components: the capacity for resistance and the capacity for recovery. Resistance is the supply chain’s ability to reduce the impact of disruption, and recovery is the supply chain’s ability to quickly resume normal operations after a disruption.
Resilience in the supply chain: key factors
- Identify: what risk is most likely to compromise the organization’s supply chain? (internal and external)
- Analyze: evaluate risks and determine potential outcomes and effects
- Respond: define the next steps to protect and secure the supply chain
Many find success in developing a resilient supply chain by segmenting it; segmenting your supply chain creates flexibility by providing you with alternative suppliers and routes.
Ultimately, when an event disrupts business, the supply chain must be able to adjust. A company’s response to disruption is based on its risk management and supply chain management strategy. When the unexpected happens, or when identified risks become real, resilience will overcome the associated challenges.
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