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07/11/2022

Supply Chain Resiliency: What It Means and Why It's Imperative

As the global supply chain has been forced to learn to operate in an inherently more disruptive environment, resiliency has emerged as a critical organizing principle.

Historically, IDC has defined resiliency as the capability of a supply chain to ensure and preserve the continuity and consistency of product supply and meet business obligations for product delivery and service to customers in the face of a broad range of potential supply chain risks, both short-term operational and longer-term strategic disruptions.

 

In a more practical way, we also think about resiliency as the intersection of visibility, insight, intelligence, and agility. It is not enough to see what is happening — the supply chain must be able to quickly analyze available data and react and act in real time.

 

To be resilient, supply chain organizations must be able to do the following four things:

 

  • Visibility/risk assessment - the vulnerability of the supply chain to both internal and external disruptions and the ability to see them as they develop in real-time.
  • Intelligence/data analysis – the ability to quickly turn massive amounts of visibility and operational data into focused, actionable insights.
  • Agility/disruption mitigation/response planning - readiness assessment and the operational capability to effectively manage disruptions and communicate status
  • Agility/disruption response execution. The actual response performance of both mitigation and responsiveness

Although supply chain resiliency is critical in today's disruptive environment, companies had historically found it difficult to detail the business case fully and justify its return on investment — and to build the necessary internal capabilities. However, the levels of disruption brought by a global pandemic, and now military conflict in Ukraine, has revealed persistent "cracks" in the supply chain.

 

I have frequently made the point that while a rising tide may lift all boats, a dramatically falling tide can wreck them all, too. Indeed, because of both the scale and frequency of disruptions in the current business environment, supply chains have zeroed in on two things to address risk and become resilient. Based on responses from IDC's 2022 global supply chain survey, 64% of companies are focusing on improving supply chain visibility and 65% are looking for way to be more agile. Further, when asked about critical gaps in their supply chains, 41% of companies say they lack the supply chain visibility and agility to see necessary changes in time to react to them effectively.

 

The precise implementation of resiliency will mean different things to different areas of the supply chain:

 

  • In operations, resiliency is about evaluating and balancing operational efficiency, specifically factory utilization against spare capacity and peak flexibility.
  • In supply chain planning, it is ensuring supply chain orchestration capability (control tower or multi-enterprise networks) aligned to the supply chain digital twin with a transparent sales & operations planning processes and robust scenario simulation tools.
  • In fulfillment, resiliency means managing the balance between inventory management/availability and customer service levels; and understanding the implications of shipment demand on inventory and transportation capacity.

The most resilient and mature supply chains operate as a digitally enabled, thinking organization that can easily and comprehensively identify and anticipate disruptions and either mitigate them ahead of time or be prepared to react quickly when they occur. At this stage, the supply chain is a clear competitive advantage. Even if a disruption occurs that was not recognized in advance, the organizational and technological tools in place allow the supply chain to react so quickly as to almost seem like the disruption was foreseen.

 

Yet, these resilient supply chains are very much in the minority — only about 7% of organizations surveyed in a recent IDC benchmark study said they had them, leaving 93% with work to do. In that same study, 63% of North American companies said they have increased their organization’s overall investment in digital technology to support supply chain resiliency over the past two years.

 

It has become clear that the supply chain is not just a cost center that supports the business, rather it is a critical element, a strategic partner, to the business. If the supply chain doesn't work well, the business doesn’t work well and cannot meet revenue and profit targets.

 

As the global pandemic has made clear, a resilient supply chain that can change and adapt to existing business challenges or to new business opportunities will allow companies to outcompete those competitors saddled with a rigid, brittle supply chain. In a calm, predictable environment, resiliency may well be a "cost" that cannot be borne. But in a chaotic, unpredictable environment, it is the "benefit" you cannot pass up.

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