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How can you proof you supply chain against the worst the world can throw at it?

In part one, which you can read here, we covered why risks are rising and how it is important to try and get ahead with a strong planning function. This week, we will delve into the practicalities of creating and supporting a supply chain command and control structure that can cope with the worst the world can throw at it.

Creating a mosaic of data

The first element in any supply chain planning scenario is to be able to see as far as possible up and down your supply chain and to be able to aggregate and represent that in an understandable and accessible manner.

“To aid the decision making, visibility is critical,” says Phil Roe, Chief Customer Officer and Strategy Director UKI at DHL Supply Chain.

The ability to come up with the what-ifs and plan for hypothetical outcomes is important. To do this you need to start with visibility across the broadest range of your business KPIs

“While it’s important not to see ongoing supply chain control as ‘war gaming’,” he warns “the ability to come up with the what-ifs and plan for hypothetical outcomes is important. To do this you need to start with visibility across the broadest range of your business KPIs, and look at ways of building on your existing systems to help you understand the potential scenarios, and how to act on them.”

Ed Barriball, Partner at McKinsey & Company, takes a similar position and suggests looking at internal systems and metrics first, with an emphasis on keeping it simple, followed by building out into easily available data sources. “I think sometimes people hear data and trying to figure out who all our suppliers are and unifying data systems and they start to think about big IT projects and lengthy timelines. We find that companies can actually do this very quickly. The tools exists today. Frankly, a lot of the data is out there today. Either they have it or you can go buy it relative quickly to do the assessment of ‘where do I really have vulnerabilities?’”

Emphasising getting results now and moving forward with planning, Barriball urges that “folks who are thinking about war rooms, or other concepts like this, would be, how do you get results on a weekly timeline, not on a month long timeline or years long timeline and making a difference?” This is critical to get “a sense of where my most urgent vulnerability is? Where are my best opportunities? And really start moving out on them.”

The ability to see a broad range of data was critical here, alongside the ability to display the data numerically and graphically, meaning that people could see it and quickly act on it

DHL looked to do just this by building “Upon our own existing systems during the pandemic to blend manually inputted and automatically generated data and provide us with comprehensive understanding in real time across every site,” notes Roe. “This meant we were able to look across each site every morning and quickly see which were experiencing ups and downs in terms of availability, high levels of absence, or those particularly affected by lockdowns across the world. From there we could work on redeployment of staff and resources in order to minimise any downtime. The ability to see a broad range of data was critical here, alongside the ability to display the data numerically and graphically, meaning that people could see it and quickly act on it.”

“However, one of the risks with this level of visibility is that it can lead to ‘over-responding’,” he warns, “where an excess of data leads to action that may be unnecessary or disproportionate. “Judgement and patience in terms of being able to understand the difference between a trend and an event is critical, and really reinforces the need for a trained and experienced decision maker at the heart of your ‘war room’.”

Know your suppliers’ supplier

Another critical aspect of visibility that feeds into data but often requires a more human element is in evaluating and managing your suppliers.

From Barriball’s perspective, “Step one is just know who you're buying from. Sounds very trite, but if you talk to a lot of companies … and then if you ask, ‘Do you know who your supplier suppliers are?’ You're in a world where many people are completely blind.”

The ability to see a broad range of data was critical here, alongside the ability to display the data numerically and graphically, meaning that people could see it and quickly act on it

Unfortunately “there isn't kind of a one-size-fits-all magic tool that's going to illuminate your tier two, tier three, tier four suppliers. You need to be using a mix of data that's out there,” stretching across proprietary data, open source data, macroeconomic data, geographic analysis, and engaging in supplier collaboration “particularly with critical suppliers, to help them jointly investigate the supply chain.”

When vulnerabilities are found, he discourages companies from being timid, especially during the pandemic. “I don't think this is a time to think about incremental changes,” such as “finding a second supplier and things like that, but I think the folks who will really come out of this period that we're living in ahead of time are the ones who are going to use this as an opportunity to really make big changes.”

Minimising and managing risk in the long term

It is critical to note these essential frameworks can all fall apart without the right people, empowered to take a decisive course of action across supply chains generally, but particularly at moments of instability.

The problem that folks often have is they're a bit risk blind

“The people that work in this area have to understand the supply chains they're looking at,” implores Roe, “and they have to be highly numerate in terms of understanding what the data tells them, and cause and effect. Analytical skills become incredibly important, allowing for the proper understanding and powerful application of the insight generated from data sources.”

This is especially so, as typically “The problem that folks often have is they're a bit risk blind,” says Barriball. “They actually don't know what risks they're bearing and they don't have a good sense of where the rest sits. Plus they don't have a good sense of how to value that risk.”

Barriball suggests that supply chain leaders take a similar mindset to the stress-testing environment put in place after the 2008 financial crisis to “Really think about how much risk we're bearing and given a variety of situations that could occur in the, world what happens,” in each.

Diving deep into these issues is to be encouraged and then communicated to boards and investors, so they can see “Here’s the value of the investments that I'm making. I’m actually a much more resilient company; I'm going to have better long term returns and you should value that.”

Visibility and control mean nothing without action

Above all, says Roe, “When it comes to the effective management of a complex supply chain,” the mission-critical factor “is empowering a decision maker, or a team of decision makers, to act across the organisation. It might be that the decision maker is a small team, but it is an essential role, as visibility and control mean nothing without action. Ideally, the decision maker will have cross-functional knowledge and exposure, as disruptions and shocks can come from many different areas, and demand different areas of expertise.”

Taking this kind of all-encompassing approach may be the only way to try and genuinely get to the source of managing supply chain risk. Humans are notoriously bad at judging risk and recognising their own bias. Therefore the lessons are all about the fundamentals: Empower your decision makers; gather the data; evaluate your suppliers; entrench visibility to the highest tiers possible; listen to your teammates, the data and key suppliers; think the unthinkable; and plan accordingly.

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