How Fragile is Your Supply Chain?

by Ryan Loveless and Bill Woodward

As risk analyst and author Nassim Nicholas Taleb states, “fragile things break”.  When your supply chain is fragile, even minor disruptions can cause it to break and lead to negative, potentially threatening, ramifications for your business’s survival.  Not only can it cause issues for you, but also your customers and even their customers, threatening immediate income and long-term viability.  This is not a good place to be if you’re striving to grow, add value, and yield increased revenues and profits.  The global pandemic has exposed both macro fragilities (events and circumstances that you have little to no control over) as well as micro fragilities (situations where you have increased abilities to regulate and manage the outcome).  Regardless of your control, you need to be aware of the possibilities and prepared to manage them.  Some companies adapted more quickly to disruptions caused by COVID than others. The range of supply chain fragilities is wide from micro-chips, lumber, steel, and oil, to labor, and even Chick-fil-A sauces, to name a few. This induces supply chain friction and inflation, even if transitory. While many supply chain fragilities are beyond your control, there are a few key considerations to mitigate your risks:

Cybersecurity

While some recent cyberattacks, such as Colonial Oil and beef producer JBS, have been widely publicized, they are only two of an ever-increasing number. Both attacks caused wide-spread business disruption, ransom and other costs, and damaged reputation. Recently, the FBI reported an 800% increase in cybercrimes since March 2020, with most cyberattacks committed against mid-sized or smaller businesses.  Most often these cyberattacks are not specifically targeted, but simply part of an automated program built to extract as much money and data as possible from breached businesses.  Complex attacks that were previously reserved for larger organizations are now repackaged and sold on public marketplaces as commodities arming would-be attackers with advanced weaponry. With the increasing likelihood of attack and an increasing impact on your connected technology-dependent operations, it is important to bring cybersecurity to the forefront of your supply chain and operational risk planning.  If you haven’t yet benchmarked your cybersecurity platform, you should.  The technology cyber attackers use will continually improve and your technology and security must keep pace.

Transparency and visibility

According to the International Data Corporation (IDC) 2020 Supply Chain Survey, about 25% of respondents noted their focus is on supply chain visibility from end-to-end.  Without supply chain transparency and visibility, demand and supply changes are unobservable, which hinders timely and effective reaction and resiliency. Further, transparency in your supply chain may be a requirement to do business with larger companies moving forward as they look to gain visibility over their supply.  This seems to be a persistent issue and requires continuous discipline and improvement.

Automation and Data

Clearly, improved automation and utilization of data helps drive supply chain resiliency, transparency, visibility, and overall reliability.  Automation and better data utilization help integrate vision, mission, values, culture, people, and processes for better overall outcomes. Enhanced data and visibility across your supply chain will significantly improve your ability to make the right decisions about how to manage the process. IDC predicts by the end of 2021, 90% of global manufacturing supply chains will have invested in the technology infrastructure and the business processes that should deliver true resiliency to their operations.   Even if your company does not have an international presence, you are impacted by global events.  The investments in technology will soon be pushed to all suppliers within the supply chain.  Your business is also a link in your customers’ supply chain, and you certainly don’t want to be the weakest.  Technology will not retreat in the post pandemic world, but will continue accelerating.

Resiliency

In our highly integrated and interdependent world, disruptions will occur. Pandemics, stuck tankers, political events, and other unforeseeable events will continue, along with routine, less disruptive issues.  You cannot predict or prevent every disruption or error, so resiliency is critical.  Resiliency includes utilizing transparency, visibility, automation, and data to bounce back when disruptions occur. It can even be something as simple as diversifying your vendors to have different options, should a shortage take place.  Review what is currently being done in-house vs. outsourced. Evaluate the risks posed to the business, identify weak points, understand what levers exist should the need arise (e.g. does your cash position allow you to increase safety stock when there is a potential issue?).  Being resilient when others can’t may enable you to add value and potentially gain market share during chaos and disorder.

We Can Help

According to Taleb, not only do fragile things break, but the “anti-fragile” actually gain from disorder and chaos. We can be sure that businesses will continue to experience disruption from chaotic events or seasons.  Are you prepared?  Our team is here to help you strengthen your supply chain and develop resiliency. To learn more, please contact Ryan Loveless or Bill Woodward.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.