Manufacturers Seek Improved Supply Chain Resiliency
Risk management in the manufacturing supply chain has improved markedly over recent years, thanks largely to better managerial approaches, technological advances and changes in global trade patterns.
However, companies still face many challenges. The complexity of industrial manufacturing operations and a volatile competitive environment constantly threaten the integrity of supply chains.
Further advances will help companies to mitigate these risks. Technologies are being deployed to identify threats and tackle them before they turn into costly disruptions.
A Better Outlook
As supply chains expanded their global reach and became exposed to a wider range of risks, companies responded with more robust programs for managing risk.
Innovative risk management tools are a key part of these programs. For example, Penske Logistics developed a crisis management tool in collaboration with leading manufacturers in the U.S. that incorporates analysis of weather forecasts and other key predictors of operating conditions. The tool enables companies to anticipate adverse changes and re-route material flows accordingly.
A shift in outsourcing strategies has also helped to lower risk levels in supply chains. A decade or two ago, outsourcing manufacturing operations to contractors in low-cost countries such as China was a top priority for many companies.
Today, this strategy commands less attention due to factors such as higher labor costs in China. Now, there is more emphasis on manufacturing in countries closer to end markets, hence shorter supply chains and less risk.
Problems Remain
While today's manufacturing operations are generally more resilient, they are far from risk-free. Supply chain visibility has improved, but the view remains restricted — particularly in end-to-end global supply chains. Visibility limitations create risk.
Compliance is another area where blind spots can render companies vulnerable to supply interruptions. Monitoring the performance of vendors deep within a multi-tier supply chain remains a challenge. This type of risk can increase when suppliers are widely dispersed, and networks are subject to churn.
Large supplier networks can also insulate individual vendors against the end-to-end implications of risk. Small to mid-size enterprises that do not have the resources to closely monitor the supply chain are especially prone to this phenomenon. They may be unaware of how a misstep can reverberate through the entire supply chain.
The volatility of our operating environment also raises the risk profile of markets. For example, political risk is ever-present; changes to trade agreements, shifting trade tariffs, sanctions and territorial disputes create additional risk. The outcomes of the talks have a significant impact on manufacturing supply chains in respective regions.
Inventory at a Price
Companies combat and manage risk in various ways. One of the most common is to build inventory to buffer operations against unexpected changes in demand. It's an effective management approach — but it can be expensive.
Companies often ask logistics providers to help them figure out how to replace inventory with information; how to sense and respond to changes proactively.
It's not a new idea, but modern-day tools such as Internet of Things (IoT) sensing and predictive analytics have taken it to a much higher level. Using data from an array of sensors in the field that monitor the location and status of product moving through supply chains, predictive models analyze product flows and forewarn companies of problems. Armed with this information, managers can take corrective actions that prevent problems from materializing, thereby reducing the need for costly buffer inventory.
A new generation of transportation management systems (TMS) is another innovation that gives companies a clearer window into supply chain operations. Again, the solution is by no means new, but recent advances have extended TMS analytical capabilities and integrated them with other complementary technologies.
For example, the latest TMS suites marry data derived from the system with business intelligence frameworks to analyze the broad impact of occurrences such as supplier failures. Not long ago, companies didn't have this technology. Now they can use it to map suppliers in a systematic way and evaluate the scale of potential problems.
Untapped Potential
Such tools will become even more sophisticated over the next few years. Existing technologies such as IoT sensing are being refined, and newer ones — Blockchain being the most notable example at present — promise to bring new capabilities.