Supply Chain Resilience: Just a fancy buzzword in times of crisis or a real value driver?

However, the crucial difference is that the COVID-19 pandemic is the first incident affecting the world as a whole, and almost at the same time. It has turned out to be THE stress test for the resilience of not only human beings but also of logistics and supply chains around the globe. Governments as well as communities and consumers experienced the effects of products not being available at all times and in all amounts required.

Next up, with the start of 2021, Brexit brings a whole raft of new uncertainties for supply chains.

At DHL Express we have been preparing for Brexit for months, setting up contingency plans to deliver the best service quality no matter what the outcome is. We offer our customers information in webinars as well as on our homepage to ensure they consider all obstacles they might experience. For example, customs declarations will be needed for goods going in and out of the UK and traders have to demonstrate compliance with new standards and rules of origin. The UK is quite special as it has no land borders and, besides the Eurotunnel, only a few ports to import most of its food and supplies. For example, today 80% of food is imported into the UK. To keep this system running, it needs a supply chain crossing borders as well as seas.

New systems, hardware and software to manage all the new processes are needed. For example, there will be an estimated 5 million extra customs declarations that need to be made per year, at a cost of 200 million euros for customs declarations. These are just two of many figures showing the financial pressure on businesses to keep on trading once the UK is no longer part of the EU single market.

Companies in the UK and their partners were forced to take a deep dive into the set-up of their supply chains to find out how to adjust them to continue their business. But even without a UK connection it is most important for you to take a closer look at your supply chains for detecting possible changes needed. During the last five years some 99% of companies have already experienced a disruption of their supply chains for different reasons. And even if we don’t know what it will look like – we know the next crisis and therefore the next disruption will certainly come. Nevertheless, according to a report by the Business Continuity Institute, an estimated 50% of companies don’t have full transparency of their supply chains and don’t have efficient tools to monitor and analyze them. Increasing the resilience of the supply chain may sound like a no brainer but you’ll be surprised how little is done. Low-cost supply as well as minimal inventory have often been the key principles of supply chain management. In the short-term, cost optimization will be a successful approach. But this does not leave any room to adjust the supply chains to unpredicted events and avoid even more expenses resulting from them.  

Resilience does not come for free though – when the crisis will go, the additional costs will stay. So what to do to get out of this dilemma of cost optimization? Well, you can surely learn from others to help answer this question. Amazon is a great example of how to use the supply chain as a value driver and a competitive differentiator. The company’s combination of high-class information technology, a large network of warehouses as well as multi-tier inventory management makes Amazon’s supply chain extremely customer centric. No wonder the company is one of the biggest profiteers of the COVID-19 crisis. Its example perfectly shows how analytics, automation and forecasting can pay off in times of crisis and surely also beyond.

But how do you get there? It does not have to be very complicated. At DHL Express we are using a rather simple but very effective tool to analyze the supply chains with our customers, to have a base for creating new ideas together. Our ISCA (Interactive Supply Chain Analysis) Tool helps to define the focus lanes of a business individually and interactively. When the means of transportation have been visualized in the cluster of the tool, the supply chains can be further investigated pertaining to countries, suppliers, warehouse and distribution and so on. A question catalogue helps to always refer back to the same core questions for this analysis. For example: “What packaging do you use for your product?”, “Who are the customers of your customers?” or “In which countries do you ship your products?” Once we know all the details of how the supply chains of the customer look like, we can better identify any advantages as well as possible challenges of the existing supply chains. This small tool can therefore trigger the right questions to optimize customers’ supply chains while also making them more resilient. These measures especially empower SMEs to participate in global trade. Once the supply chain is set up with more agility, it becomes more flexible and therefore more resilient in case of any disruptions. 

Early warning systems as well as alternative distribution plans are key factors to avoid production problems or even empty warehouses. For every channel, warehouse or supplier you should measure the risk they contain and develop back-up solutions. Make sure to have business continuity plans ready for emergency situations to avoid negative impacts on your customers and your business. The ability to react fast is key in times of crisis as it will help you to provide the best possible service to your customers. This again will ensure the crisis will end up to be a business opportunity for you. Your access to real time information is therefore an important means of preparation. For example at DHL we are providing our innovative “DHL Resilience360” platform to predict, assess and mitigate the risk of supply chain disruptions. It provides businesses with the information they need for supply chain visualization, trade compliance and moreover helps to provide near real time monitoring of incidents that have the capability to disrupt supply chains. The quality and availability of data on all parts of the supply chain is certainly essential for their fast and regular analysis leading to optimized business decisions. 

These are my key take-aways for resilient supply chains:

1. Visualizing: With the help of tools and software platforms like ISCA you can visualize your supply chains. Use them as the first step to detect their strengths and weaknesses.
2. Optimizing: Once the first visualization is done you can plan improvements regarding cost, reliability and speed of your supply chains. Don’t just focus on transportation cost, it is about total supply chain cost. Attach a price tag to reliability risks.
3. De-risking: The transparency you have accomplished enables you to reduce the risks in all parts of your supply chains. Second sources and back-up scenarios get your business ready for future events and possible disruptions.
4. Updating: Digital applications and platforms like “DHL Resilience360” allow the best possible availability and quality of information. Consequently you will always have real-time knowledge about potential supply chain risks.
5. Managing: Use your knowledge to actively manage your supply chain 24/7 to ensure your goods keep flowing at all times.

The recently published new edition of the DHL Global Connectedness Index (GCI) has revealed that globalization is far more robust than expected and is on track to survive the impacts of COVID-19. According to the GCI, Europe is the most globalized region in the world, with the most international connections in trade, travel, finance and information. Increasing the resilience of supply chains will help us to protect global welfare even better and will also soften the impact of future crises, which will definitely come.

Published: January 2021

Image: iStock, DHL