Not every company can be Nike. As with most retailers, it experienced a first-quarter loss in 2020. Its revenue dropped 38%. However, its latest quarter showed a $1.5 billion net profit, which was 11% higher than the same 2019 quarter. How was it that Nike was able to pivot and outperform Wall Street predictions?
Nike is known for its world-class supply chain expertise, and after years of analysis, they’ve nearly perfected the manufacturing process. The company used the information to build a resilient supply chain by identifying vulnerabilities and working to minimize associated risks. It then created a business continuity plan that would ensure its ability to thrive during catastrophic events.
Business Continuity Plans (BCP)
Continuity plans are more comprehensive than disaster recovery plans. They outline how an organization will operate during an unplanned service disruption. Contingencies are outlined for every aspect of the business, including supply chains.
According to an informal survey conducted by Harvard Business School, almost 70% of companies were still trying to find potential solutions to the disrupted supply chain well into March and April. With a business continuity plan, companies such as Nike were the first to secure the materials and resources to keep their supply chain functioning. Why? Those businesses had already asked and answered questions to ensure continuous operation. They had found answers to three questions:
Is the supply chain visible?
Is the supply chain agile?
Is the supply chain resilient?
The companies had assessed the vulnerabilities in their supply chain and developed plans to mitigate the risk when a disruption occurred.
Supply Chain Visibility (SCV)
Supply chain visibility enables companies to know their inventory status and where the components, parts, or products are while in transit to a final destination. Visibility is designed to strengthen the process by keeping all stakeholders informed as to what is happening.
Visibility is also knowing what suppliers will do if a problem arises anywhere in the supply chain. For example, businesses are concerned about the final mile deliveries. Focusing on the end of the journey assumes that the upstream supply chain is working flawlessly. What if it isn’t? Companies need to ask their upstream providers what their business continuity plans are. There’s no point in worrying about the last mile if the shipment never finishes the first.
What happens if inventory cannot leave an organization’s primary facility? Labor strikes, natural disasters, or political upheavals can delay or force the rerouting of shipments. Businesses need to know what alternatives are available and how suppliers will respond. These plans need to be visible to the entire supply chain. According to a recent study by McKinsey, supply chain visibility is crucial to identifying relationships that increase vulnerabilities.
Supply Chain Agility
If nothing else, 2020 has taught organizations exactly how critical agility is. Why were some manufacturers able to keep their brands on the shelves and others not? Those who could scale quickly and maintain a reliable process were far ahead of those who struggled to maintain their existing supply chain.
Agility characterizes a process that responds quickly to changing requirements while delivering significantly different outcomes effectively. In other words, an agile company would know the financial ramifications of one distribution channel over another and be able to pivot to a more cost-effective solution.
For example, a company’s primary delivery port suddenly has a labor strike. Agile companies with a business continuity plan have already assessed other routes. They know other ports that can be cost-effective alternatives.
Logistics providers with robust delivery channels should have plans in place for a service disruption. They should be able to move quickly to realign resources for on-time delivery. If not, organizations are creating a vulnerability that can increase potential risks.
Supply Chain Resilience
Before companies can be resilient, their supply chains must be visible and agile. Without those capabilities, companies cannot mitigate risk from unexpected events. Supply chain resilience is the ability to prepare for unforeseen circumstances to respond and recover quickly to potential disruptions.
McKinsey analyzed unexpected events such as financial crises, terrorism, extreme weather, or pandemics and their impact on resilience. Specifically, what the lack of resiliency costs an organization.
They looked at disruptions in the supply chain for over ten years. They calculated that a company would lose 42% of one year of before-tax earnings in that same ten-year period from unplanned disruptions. Such losses are a strong financial motivator for supply chain resilience.
Where are vulnerabilities in supply chain resilience? Vulnerabilities reside with the participants. If they lack a business continuity plan, they can’t respond quickly, which increases the potential risk.
For example, is everyone in the supply chain ready to pivot if the country’s political climate turns hostile? Do they have resources in place to move as much inventory as possible as quickly as possible to ensure a steady supply? If not, the ability to meet demand may be compromised.
Supply Chain Vulnerability
To eliminate vulnerabilities, companies must make sure their supply chains are visible, agile, and resilient. They must document their methods in a business continuity plan that is used whenever a service disruption occurs. It doesn’t matter if the interruption is a power outage or a global crisis; the document must ensure a rapid return to operations.
Before the start of a new year, companies need to evaluate their supply chain carefully. They need to ask hard questions of their suppliers, such as:
Do you have a continuity plan?
If you have a power outage, will my shipment go out on schedule?
If my distribution center closes because of adverse weather, can I easily shift to another center?
What happens if a border closes and my shipment can’t get through?
Can I ship to a different port?
If you aren’t happy with the answers, contact Symbia Logistics to discuss how we can help your company be more agile, visible, and resilient.