From Risk to Resilience: Building a Supply Chain That Thrives

In this era of globalization, the remarkable increase in global sourcing has underscored the essential need for resilience in our supply chains, particularly in light of global challenges.

In this era of globalization, the supply chain has become more intricate and complex, making the chains highly susceptible to disruptions. This vulnerability is further increased because of various factors such as political instabilities, natural disasters, or trade disputes impacting a wider geographic area. Recent global events have highlighted how unpredictable and volatile our environment can be. Natural calamities and geopolitical conflicts, such as tensions in the Middle East, have all caused significant disruptions. In these situations, sticking to normal procedures is often impractical. Modern supply chains are intricate networks of interconnected firms and industries, relying heavily on efficient transportation and communication systems. This reliance is crucial but sometimes overlooked.

Gartner survey data reveals that only 19% of supply chains in the life sciences and pharmaceuticals sectors are developing new capabilities to help customers achieve their goals, compared to 23% across all industries. Recent challenges such as manufacturing consolidation, climate events, and economic and political instability have caused healthcare supply chains to react to backorders and recalls of critical medical products. This has raised the total cost of healthcare supply chains, which already constitutes 37.3% of patient care expenses. Supply chain leaders in the life sciences must focus on long-term solutions that ensure business continuity and profitability.

What are the Risk Types?

Supply chain risks can be viewed from various angles and frameworks. Risks can be further broken down into five distinct types:

1. Internal Risks

• Process
• Control
• Resource
• Financial

2. External Risks

• Demand
• Supply
• Environmental

Overview of Risk Categories:

1. Process: Processes are the series of value-adding and managerial activities that a firm undertakes. The effectiveness of these processes largely depends on the firm’s internally managed assets and its infrastructure. Disruptions in these processes are considered process risks, which can arise from issues with the firm's own assets or its supporting systems like transport and communication.
2. Control: Controls are the rules, systems, and procedures that govern how a firm manages its processes. In the supply chain context, these include order quantities, batch sizes, safety stock policies, and asset management practices. Control risks involve potential problems resulting from incorrect application or failure of these control mechanisms.
3. Resource: Supply chain effectiveness can be hindered by capacity constraints and skill shortages. Limitations in production, warehousing, or transportation resources can impede meeting demand and maintaining smooth operations. Plus, a lack of skilled personnel or insufficient training can undermine the overall management and functionality of the supply chain.
4. Financial: Budget overruns and cash flow issues can severely impact the supply chain. Unexpected costs or poor financial management can deplete resources and restrict investments in necessary improvements or technologies, while cash flow problems can disrupt operations, harm supplier relationships, and impede the ability to meet financial obligations.
5. Demand: These risks are external to the firm but still within the supply chain network. They involve disturbances in the flow of products, information, and cash between the firm and the market. While a firm might not be aware of every possible disturbance, it should be proactive in understanding and monitoring risks that could affect its adjacent organizations.
6. Supply: Similar to demand risks but in the opposite direction, supply risks concern potential disruptions to the flow of products or information coming from upstream within the supply chain network. These risks pertain to issues affecting suppliers and other upstream entities.
7. Environmental: These events can directly impact the focal firm, its upstream or downstream partners, or the marketplace as a whole. They can affect specific value streams, such as product contamination, or any node or link in the supply chain, for example, due to accidents, direct actions, severe weather, or natural disasters. Sociopolitical, economic, or technological events can have far-reaching consequences for a firm's supply chain, affecting neighboring industrial networks through various links. Some events, such as those resulting from regulatory changes, may be predictable, while others may not be. However, the impact of these events can often be assessed, even if the events themselves are not easily predictable.

According to a report from McKinsey, supply chain managers face significant challenges during natural disasters. In 2019, the global losses from earthquakes, floods, fires, and similar events totaled $150 billion. However, there have been more frequent and substantial spikes in losses. In 2017, losses reached nearly $350 billion due to Hurricanes Irma and Maria, and in 2011, due to Thai floods and the Fukushima earthquake-tsunami.

Identifying the Supply Chain Risk Areas

Pwc carried out research with MIT (PwC/MIT Forum for Supply Chain Innovation, Global Supply Chain and Risk Management Survey, 2013), which revealed some significant insights about risk areas (you can read the full report here).

First, it highlights the mission-critical areas that can impact a supply chain. These factors may vary across companies and industries but can work as a basis for effective decision-making.

Next, it involves identifying at-risk areas in our supply chain by assessing potential threats and vulnerabilities.  After this, businesses can evaluate their supply chain processes, including risk management. That also includes checking for the availability and ease of using alternate suppliers.

Finally, the organization should thoroughly evaluate the probability and potential consequences of supply chain disruptions that the company is willing to accommodate or manage. This assessment should take into account factors such as the financial implications, customer satisfaction, production delays, and overall operational resilience.

PwC/MIT Forum for Supply Chain Innovation, Global Supply Chain and Risk Management Survey, 2013, Source: pwc

The Path Forward: Building a Resilient Supply Chain

It covers key measures for increasing supply chain resilience. The key principles include:

1. Prioritize building resilience: Incorporate resilience characteristics into the supply chain's basic design to better withstand disturbances.
2. Collective Risk Management: Because supply chains encompass several enterprises, successful risk management necessitates close collaboration among all participants.
3. Agile Environment: Develop the capacity to respond swiftly to unexpected developments in order to stay ahead in an unpredictable environment.
4. Risk Management Culture: Create a culture prioritizing risk management, acknowledging that risks can emerge from internal and external sources.

These principles align with best practices in supply chain management and are crucial for building a robust and adaptable supply chain.

How to Enhance Supply Chain Resilience?

1. Automation and Supply Chain 4.0

Gartner's survey reveals that life science supply chains have not fully embraced digital decision-making tools. At present, just 44% use technology to assess how different scenarios might impact their outcomes. Of those that do, 69% use advanced analytics, 17% employ performance tracking and visibility tools, and 14% utilize artificial intelligence (AI) and machine learning (ML). The report shares valuable insights.

Leading supply chains in the life sciences sector are focusing on automation to drive transformation and ensure quality patient care at sustainable costs. As per the survey, the top five investment areas for targeted real-time decision execution include:

According to a report, by 2027, over a quarter (26%) of warehouses are expected to be automated, a substantial rise from 14% a decade earlier. AI and data analytics are crucial for predictive maintenance, demand forecasting, and optimizing supply chain operations, provided that high-quality data inputs are ensured. A report by McKinsey indicates that the average level of digitization in supply chains is 43%. The report provides some eye-opening observations, emphasizing the significance of firms rethinking their supply chain strategies in light of fast digitization and Industry 4.0 improvements. Adopting new digital models and minimizing digital waste are critical for increasing resilience and operational effectiveness. Transitioning to Supply Chain 4.0 could have a transformative impact, with possible benefits including up to a 75% reduction in missed sales, 30% reduced transport and warehousing costs, 80% lower administrative expenses, and a 75% decrease in inventory.

Source: freepik

Discover the comprehensive and proficient industrial automation engineering services offered by iLenSys. We specialize in various systems including PLC, HMI, SCADA, batch, safety, drives, historian, IoT, and data integration. Additionally, we provide expert support for platform-independent engineering services such as Ignition SCADA, SQL connectivity with Ignition SCADA, OPC UA & DA, Rockwell Automation, Wonderware SCADA & Historian, Schneider Electric, GE Digital, and more.

2. Nearshoring

Companies are increasingly reshoring or nearshoring their operations to reduce the risks associated with long supply chains. This entails bringing production and sourcing closer to the end market, lowering transportation costs, improving supply chain visibility, and increasing market response.

3. Integrated Nerve Centers and cross-functional teams for smart operations

Businesses today establish a nerve center that consolidates organizational responses by forming a cross-functional team. Fostering cross-functional collaboration is an important step toward increasing supply chain resilience. Manufacturers, distributors, healthcare providers, and regulatory organizations are among the many stakeholders in the life sciences supply chain. Organizations can improve their awareness of supply chain phases and identify potential bottlenecks or hazards by encouraging collaboration and inclusion across multiple teams. For example, a procurement, manufacturing, logistics, and quality assurance team can work together to identify potential for process improvements, risk mitigation techniques, and contingency plans.

A nerve center consolidates data from many sources to provide a uniform and accurate view, allowing for real-time analysis to facilitate faster, more informed decision-making and trend identification. It improves coordination by serving as a communication center between departments, addresses issues proactively to avoid escalation, and increases operational efficiency by optimizing resource allocation and decreasing redundancy. It also aids strategic planning by integrating long-term objectives with performance measurements and market conditions.

Source: freepik

4. Diversification and Flexibility

Diversifying the supplier base and introducing flexibility into the supply chain are critical for resilience in medical device production. This technique entails procuring crucial components from various sources, using secondary sourcing for critical parts, and maintaining safety inventories to prevent supply disruptions. These steps serve to decrease risks, provide a dependable supply chain, and enable quick response to any difficulties.

5. Optimizing inventory with buffer

Keeping additional inventory and utilizing unused manufacturing space are strategies to enhance resilience. However, these approaches can incur high costs. Alternatively, employing contract manufacturing can provide additional capacity.

Benefits of a Resilient Supply Chain

End-to-End Visibility: Track stock-keeping units (SKUs) in real time with intuitive graphs, providing valuable insights into your operation.

Cost-effectiveness: Due to end-to-end visibility, organizations can minimize costs of procurement, production, and distribution costs even in unpredictable and challenging circumstances.

Optimum Production: Predicting demand helps businesses plan ahead and strategize their demand and supply process by allocating resources and optimizing their production capabilities.

Proactive Resolution: Identifying at every juncture and resolving possible bottlenecks even before they arise.

iLenSys enables your business to be compliant and supply chain to be resilient. Our comprehensive services modernize your business processes with new-age engineering services, automating repetitive tasks and optimizing business efficiency.

Transformation doesn’t have to be exhaustive—even when it’s ongoing. Businesses today need to adapt to the fast-changing landscape, where new regulations and design updates change continually. iLenSys helps you do just that and much more.

Contact us to understand how we can modernize your process as well as optimize uptime and efficiency in mission-critical tasks, with future-ready solutions and services.

Conclusion

According to a report from Gartner, disruptions to supply chain operations have become more severe in recent years. This means that the cost of retaining multiple supply locations must be seen more as a cost of doing business, rather than an inefficiency.

Creating a flexible supply chain necessitates a multi-pronged strategy that includes integrating cutting-edge technologies, shifting production domestically, and strengthening environmental programs. While these activities may be difficult and costly, they provide considerable long-term benefits in terms of stability, efficiency, and compliance. Companies that prioritize resilience may better negotiate the uncertainties of the global supply chain landscape, ensuring long-term growth.

iLenSys Technologies

-Rajashree Deka