A new white paper by the Association for Supply Chain Management (ASCM) has spelled out the „5 S’s” they believe need to be addressed in order to build a resilient supply chain.
The „5 S’s” were published in a paper by researcher Morgan Swink and the ASCM RISC Committee, whose extensive study of over 1,800 publicly held firms sought to determine why some supply chain organizations were better able to withstand the Great Recession of 2008-2009. The research concludes that organisations who had focused on resilience, agility and risk management fare better than their peers when global conditions change. The paper also found that companies who performed better during the financial crisis also have a number of traits in common.
To start with, the paper argues that resilient companies tend to have lower levels of working capital, which in turns means more speed through the system and less inventory. Companies that performed better during the recession were also more labour intensive, and as a consequence, they found it easier to make people redundant than reduce fixed assets. The employees in these companies became more productive, while they were also able to outsource asset-intensive and less productive processes. Finally, firms who had invested in monitoring and risk assessment knew about the incoming economic downturn earlier and thus responded faster than their competitors.
Fast forward to today, and the ASCM say that resilient supply chains are already becoming more agile and responsive so as to deal with the challenges presented by the pandemic. Therefore organisations that do not wish to fall behind should do as follows:
■ Double down on digital investments. ■ Rebalance the supply chain to be more agile. ■ Focus on full integration of risk management with synchronized planning. ■ Consider how to identify risks early and scenario plan. ■ Think about more effective public/private collaboration. ■ Provide critical care. Major manufacturers and distributors, especially, need to think about critical care as part of their portfolio. ■ Rebalance global supply networks. Don’t get caught out with a single source supplier on the other side of the world, for example. ■ Update risk management playbooks for global health, climate change, and other catastrophic events.
If that all seems like a lot to take in, the ASCM have cleverly grouped everything into an easy-to-remember list of „5 S’s”:
Firstly, the ASCM recommend investing in scanning technology and capabilities. They argue that not many firms can visualise the market well enough to understand developments occurring more than two tiers down their supply chain. The ASCM also encourage companies to scan market activity to detect possible disruptions including weather, politics, and disease.
The second ‚s’, ‚smart’, refers to investment in predictive analytics like artificial intelligence, which can be used to build a learning organization. The ASCM believe that supply chains that learn from minor disruptions can apply this information and insight to significant disruptions.
The third item on the list is ‚scalable’. Here the ASCM suggest rightsizing to suit supply and demand, as well as devising a flexible cost structure with on-demand capacity. Interestingly, they also conclude that purchasing automation can result in firms being less scalable because of fixed overheads. Therefore organisations would do well to look at leasing technologies.
The penultimate ‚s’ on the ASCM’s list is ‚shiftable’, which is used to describe the ability to shift from one product to another (e.g. companies pivoting to the manufacturing of face masks instead of clothing). In order to achieve this, the ASCM advise companies to invest in generalized, multipurpose resources, including equipment and employees. Although this strategy of developing several options incurs significant costs, the ASCM believe it will pay off in the long run as it will minimise risks – not unlike an insurance policy.
The last point stressed by the ASCM is sustainability. Besides giving priority to people’s livelihoods and the environment, the ASCM encourage companies to source from local suppliers, stable economies as well as more mature sources, who are in turn more scalable and shiftable. Again, being sustainable can be expensive, yet it is likely to be worthwhile.