Exposing Supplier Vulnerabilities In The Supply Chain

The greatest risks in the international supply chain tend to occur during the first mile, which includes supplier selection, ordering, production and shipping.

As an example of how technological revolutions in communication and transportation have enabled global supply chains, take Apple, which sources its raw materials from 43 countries to make its phones. Suppliers send their products to a central manufacturing hub where the phones are made; they are then shipped to consumers in more than 175 countries.

The intricate global ballet is largely managed with tools built in the last century, leaving it extremely vulnerable to supply chain shocks, ESG deficits, negative sales impacts and operational inefficiencies. Everything from well-known brands like Apple to more mundane products like floor coverings travel an arduous and opaque journey to their point of purchase. Projections from UNCTAD showed trade in cross-border goods to the United States and Europe reaching $28 trillion in 2022.

While the long, complex supply chains that support this movement of goods are cost-efficient, they remain highly exposed to disruptions that are becoming more severe, frequent and consequential.

As consumers, we have all experienced unforeseen shocks in the supply chain—including shortages in materials and parts for the automobile, bicycle and BBQ grill industries. To prepare for future disruptions and build greater resilience, it’s essential for businesses implement a digitally connected supply chain that covers everything from sourcing to consumption. This will create visibility across every aspect of the supply and demand networks so those in the industry can implement appropriate safeguards.

The Challenges from Within

Globalization has overall left businesses exposed to increased shocks that exploit weak spots and vulnerabilities. As enterprises look to sure up their operations, they must also reflect on where the greatest vulnerabilities lie. In general, the greatest risk factors to a supply chain are distance, lack of digitization, manual reporting, low connectivity and opaque processes.

While many companies have at least some view of the potential risks in their direct tier-one supplier networks, few understand the intricacies of their sub-tiers. A recent McKinsey survey shows that only 2% of businesses had visibility built into their supply base beyond the second tier.

The truth is that without digital connectivity to suppliers, it is difficult to assess their operations. Most companies have retrofitted tools like Word documents and PDFs to try and help, which often lack the ability to assess, test, validate and collaborate effectively. In comparison, modern systems are equipped to handle multimedia and leverage advanced technologies, such as blockchain, to provide comprehensive validations and assessments. These can combine to help ensure that suppliers can meet all necessary environmental and social expectations and protect brands from any potential backlash.

The structure of supply networks also has a direct correlation with their vulnerability and resilience. Companies without a comprehensive map of their network operations can easily be exposed to weak links within the chain. Where few substitutions or vendors exist, importers can be left without alternatives if something goes wrong or a supplier can’t fulfill an order. Similarly, where a single supplier supports a large proportion of an industry, the whole market can collapse if demand exceeds supply.

It All Comes Back to Transparency

Whatever the structure or setup, companies are in need of digital connections to the people who make and move their products. Digital connections create transparency, visibility and agility.

 Customer satisfaction sits at the very heart of a business’s success, from simply helping to meet sales goals to building the foundations of a loyal customer base. Total transparency in the final mile where we sell our products is foundational.

However, modern supply chains must shift away from a linear model to a networked one. Making the shift to a networked model of supply is fundamental to creating a cohesive first mile that enables the success of downstream operations. When considering how to do this, businesses should look at three main areas.

1. The importance of supplier relationships.

Vendors are crucial to success. By placing more value on the supplier relationship, importers can work with their counterparts to navigate complexities or hiccups as they occur in real time. A supplier relationship framework should be created to guide good corporate hygiene and governance.

2. The structure of the supply network.

Importers must consider how to mitigate future challenges through their supply network by spreading risk across multiple suppliers, recognizing that deeply entrenched networks can make transparency nearly impossible. Building SOPs into contracts and sharing mitigation strategies from day one can help to avoid unforeseen issues that can radically disrupt operations.

3. The power of technology.

Digitalization is key to global transformation, and the first mile of the supply chain is ripe for new tools to help meet this goal. However, these tools should be used with caution; even an otherwise good system used incorrectly can have negative results. Organizations must build out their processes and business practices and make sure to use the technology as an enabler to meet those aims—not the other way around.

Businesses need to first understand that the first mile (where products are made) is a critical component in their overall success, affecting both cost and sales. By viewing the supply chain as a connected network instead of a linear chain, business leaders can immediately see where issues will have knock-on effects on other parts of the chain.

Future Challenges

Looking ahead to the future challenges that our rapidly increasing globalized economy brings, businesses should consider:

• The value they bring to customers and stakeholders beyond the product or service they provide.
• The impact they have on people and the planet as consumers, stakeholders and governments focus more on regulating business practices.
• The resilience they have to ride out future shocks using anything from risk analysis, forecasting and mitigation plans to manage the unexpected.

 

This article was written by Robert Garrison from Forbes and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to legal@industrydive.com.