Building Resilient Supply Chains in the Face of Costly Disruptions

In the past year and a half, the shocks to the supply chain have come from seemingly every direction, including a pandemic that’s killed more than 4 million people, consumers hoarding toilet paper and other essentials, a national labor shortage, a ship stuck in the Suez Canal, cargo ships forced to wait weeks to unload at the nation’s busiest port in Los Angeles, a wave of ransomware attacks, tit-for-tat trade tariffs, a power-grid failure in Texas, wildfires in California, a dearth of computer chips and a shortage of truck drivers.

Faced with all those headwinds, manufacturers, distributors and retailers are being forced to reassess their supply chains, this time focusing not just on streamlining processes but also on building resiliency.

David Schwebel, executive vice president and head of logistics in North America for MHI member Grenzebach Corp., said the recent disruptions underscore the importance of following the “80/20 rule” and not relying solely on one supplier for a vital component, ingredient or product. Instead, give 80% of your business to one supplier and 20% to another so that if one of them experiences a disruption, you can lean on the other one, he said.

“Supply chains are predominantly single-source, one-way processes, so they’re very monolithic in nature, and it’s dangerous when you don’t have a backup source,” Schwebel said. “We have to have multiple countries of origin for our products and components, and we also have to have multiple suppliers of those specific components. That’s the concept of resiliency and minimizing disruptions.”

Dwight Klappich, vice president of research at Gartner, said many companies ignored a warning from 2017, when Hurricane Maria devastated Puerto Rico, knocking out production at the nearly 50 pharmaceutical plants on the island for months.

“I thought after what that hurricane did to the pharmaceutical industry, we might have learned from our mistakes, but it seems like we didn’t,” Klappich said. “We weren’t building global supply chains to the extent that we thought we were. In many cases, we were building singlesource international supply chains, which isn’t the same thing. So, I think right now, there’s a lot of focus on resiliency.”

Besides diversifying their suppliers, there are many steps companies can take to enhance their supply chains’ resiliency. Here are five more tips from the experts:

Stockpile the essentials—Klappich said many companies have come to view inventory as “enemy No. 1” because storing a robust supply of products is costly and takes up precious warehouse space.But for all the efficiencies of the just-in-time supply model, it’s also fragile, leaving companies susceptible to supply chain disruptions. Stockpiling vital components comes with a cost, but manufacturers that had stockpiled computer chips ahead of the ongoing global shortage would be looking pretty smart right now.

Consider “near-shoring”—Domestic suppliers initially may be more expensive than suppliers in countries with cheaper labor, but doing business incountry also makes companies less vulnerable to international supply chain disruptions, Schwebel said.

“You kind of have to accept that you’re going to pay a little bit more money in the beginning in order to minimize potential disruptions in the future,” he said, “so go ahead, suck up the pain and near-shore some of your components.”

Incentivize customers to be patient—If offered a coupon or other incentive, cost-conscious consumers may be willing to eschew same-day, next-day or two-day delivery and wait a bit longer for their packages, Klappich said.

“Time can be very beneficial to supply chains,” he said. “If I have four days to fulfill orders, I can buffer uncertainty with time and have much more flexibility than if I only have four hours.”

Go small and local—Instead of having several large regional distribution centers, companies can reduce their long-term costs and become less susceptible to supply chain disruptions by opening smaller warehouses nearer to their customers, Schwebel said. He points to the delays experienced by U.S. Postal Service customers last fall as a reason for companies to get closer to their customers.

“Switching over to a smaller but more diverse footprint will help to reduce the overall rising fulfillment costs and minimize your risk position if you have a disruption in your in-country transport,” Schwebel said. “You’re going to have some increased costs in the short term, but getting closer to the customer will always be cheaper in the long term.”

Adopt automation—Autonomous mobile robots, automatic guided vehicles, goods-to-person picking systems and other automated handling equipment can help personnel comply with social-distancing guidelines and reduce the chance of viral outbreaks that could not only halt operations but also take lives, according to John M. Hill, a director at MHI member St. Onge Co.

“Further, when enabled with machine learning and artificial intelligence, automation can be ‘taught’ to quickly and efficiently adapt and respond to operational anomalies and disruptions,” Hill said. “Properly deployed, these tools can also help to address rising labor costs and the scarcity of skilled workers by simplifying warehouse or distribution-center task execution.”

Having smaller facilities gives companies an opportunity to take an “incremental approach” toward adopting automated equipment, Klappich said. Companies that may lack experience with legacy automated systems could consider flexible robots such as AMRs and experiment by adding just a few at a time to perform a single job function. Once they have success, they can quickly scale up and roll out that technology to other facilities, he said.

“A best practice for that new type of buyer is to take an incremental approach and have an agile mindset,” Klappich said. “Identify certain opportunities in the short term, solve those and move on to the next one. We’re seeing right now that the time to value of flexible robots is significantly shorter than conventional automation, where it can be two years before we are fully operational.”

MHI Solutions Community members are the industry’s thought leaders on automation, software, hardware, equipment and services that support a fully integrated supply chain. This includes suppliers, integrators, consultants, media, academia and users. They collaborate on solutions worldwide and in virtually every major manufacturing and distribution sector. For more information, go to mhi.org/solutions-community.