Planning for disruption: Four principles for more resilient supply chains

Supply chains have come sharply into focus. Resurgent demand for products and services following lockdowns has outstripped supply, driven largely by pandemic-related labour shortages and geopolitical frictions. Long waiting times for consumer products such as cars, white goods and furniture have resulted, and panic buying of consumer staples is rising.

Disruptive global events are nothing new. However, today’s supply chains have been carefully engineered to maximise efficiency and minimise costs. Both are important goals from which consumers and corporates benefit. However, highly integrated and lean supply chains are by their nature exposed to rapid changes in supply and demand - they hold less inventory and depend on logistics networks that are predictable and reliable. As we learn to live with COVID-19, companies must make supply chain resilience a key pillar of their planning and operations. Their performance, the welfare of consumers, and the strength of post-pandemic economic recovery depend on it.

Companies in the automotive & industrials, consumer products, energy, and technology sectors, should consider the following four principles when analysing the resilience of their supply chains:

• Review sourcing: resilience must be balanced with cost benefits. Supplier risk should be a key priority when reviewing procurement contracts and deeper due diligence should be conducted to model the potential impacts of upstream disruptions and financial market instability.
• Manufacturing and distribution footprint optimisation: production and warehouse locations should be analysed based in part on their ability to withstand logistics or trade disruptions, factoring in potential cost avoidance from near-shoring activities. This dovetails with rising environmental, social and governance (ESG) pressures and projections for higher carbon costs in Europe over the medium term.
• End-to-end segmentation: supply chain considerations should be integrated into the product design and planning process. For example, simplifying glass bottles to alleviate glass supply constraints, or using textiles manufactured domestically despite marginally higher cost. This must be enabled by an enhanced understanding of consumer preferences and their willingness to stick with products if their design or composition changes.
• Automation risk: while automating key functions such as product assembly or warehousing can relieve labour constraints and costs, it is not without risks. Recent fires caused by industrial robots show that other risks must also be accounted for when planning for resilience and allocating capex.