Navigating Roadblocks: Challenges in Scaling Supply Chain Resilience

Overview

Supply chain resilience refers to an organization’s capacity to recognize, respond to, and implement specific strategies to mitigate the effects of changes, disruptions, and transformations along the supply chain. Taking a slightly broader tack, PwC defines the concept “as a company’s ability to prepare for and adapt to changing conditions to withstand or recover quickly from external disruptions.” 

While the idea of supply chain resilience has been around for decades, it wasn’t until the last ten years or so that it started shifting from a minor priority that only some companies were adopting to a core, critical feature for many enterprise-scale corporations. While many companies felt this during COVID, for some companies, this shift happened with the Japanese earthquake and tsunami in March 2011. 

In addition to its toll on human life and local infrastructure the earthquake also sent shockwaves through the global economy. It affected an untold number of businesses whose supply chains were connected to the disaster area, often in ways they weren’t even aware of at the time. 

(A subsequent study conducted by Northwestern University’s Kellogg School of Management found that “the disaster resulted in a 3.8 percentage point decline in the growth rate of firms with disaster-hit suppliers and a 3.1 percentage point decline in the growth rate of firms with disaster-hit customers.”)

Bose: Building a World-Class Supply Chain Resilience Program

At the time, I was working in global supply management operations for Bose, focusing on reporting and business processes and procedures following the implementation of SAP. 

In the immediate aftermath of the earthquake, we struggled to gauge how the catastrophe had impacted our supply chain; it took us nearly two weeks, in fact, to precisely identify which of our suppliers in the region had been affected. Coming out of that experience, executive leadership was determined to not let the company fall into the same kind of defensive, reactive position when future supply chain calamities struck. To ensure that they were more prepared and agile in the future, the company asked me to develop the first supply chain resiliency program at Bose. 

When I started the initiative in 2012, Bose had little in the way of supply chain visibility or strategies to identify and mitigate risks among their suppliers. We were really starting from scratch, with almost no preexisting documentation or procedures to help guide us through this new frontier in operational resiliency. While it took a number of years, we eventually built out a world-class supply chain resilience program that’s still thriving today. Though it carries out a wide range of risk-related functions, the program is chiefly focused on protecting Bose’s operations from threats in the environmental, social, and geopolitical spheres, and advancing the company-wide goals with respect to ethical sourcing, sustainability, and regulatory compliance. 

But as I learned over much of the 2010s, successfully establishing, implementing, and scaling a supply chain resiliency program is far from a smooth endeavor, and it brings a slew of significant internal and external obstacles. Below, I’ve outlined four of the most prevalent of these obstacles, and, based on a decade of working at the forefront of this rapidly growing field, the most effective countermeasures for overcoming them. 

1. Achieving Leadership Buy-In for Supply Chain Resiliency 

In my time at Bose, we were fortunate enough to have an executive leadership team that recognized the value and importance of investing in a long-term strategy for cultivating supply chain resilience. Looking at the corporate landscape more broadly, though, not every company is going to have that level of unconditional buy-in. Many executives are laser-focused on ROI, and want to know how allocating personnel and financial resources for this kind of comprehensive, time-intensive project is going to benefit the company’s bottom-line. The reality—in my experience, at least—is that demonstrating ROI for a supply chain resiliency program in a precise, quantitative way is difficult. There’s no universal, widely applicable magic formula, and it’s hard to rely on specific hypothetical scenarios that, technically speaking, your company may never have to negotiate. 

In lieu of quantitative-heavy evidence of ROI, there are two other approaches individuals can take to persuade leadership that this kind of program is worthwhile. First, they can point to current or historical examples of how a lack of supply chain resilience and a reactive stance to disruptions led to negative consequences. There’s certainly no shortage of episodes throughout the pandemic era that showcased how companies that were not sufficiently equipped with the fundamental tools for resilience—including supply chain visibility and transparency, diversification and multisourcing, and inventory buffers, to name a few—suffered major financial losses and even enduring reputational damage. 

While there are any number of individual cases that could be leveraged to convey this point, suffice it to say that some recent estimates have pegged the financial costs associated with the pandemic at north of $10 trillion in the US alone. It goes without saying that much of that astounding level of lost revenue came from the succession of disruptions to global manufacturing and transportation routes and the prolonged supplier shortages. While many of the global-scale issues stemming from the pandemic might have been largely unavoidable, individual companies with robust supply chain resilience processes could have drawn on their visibility infrastructure, dual sourcing, and other institutionalized strategies to alleviate their own costs. 

The second approach to achieving executive buy-in for supply chain resiliency is by framing the program as a pivotal competitive advantage. A relatively recent example vividly illustrates this point. When a major fire shut down a critical semiconductor manufacturing facility in Japan in October 2020, it had a swift and profound impact on the automotive industry. Because of the years of experience Bose had in supply chain risk management, though, we were able to respond with decisiveness and agility when it came to managing our inventory and protecting against the prospect of crippling shortages. Ultimately, we put ourselves in a much better position than many of our competitors, who did not immediately grasp the gravity of the situation and were far slower to respond. If you have the in-house expertise and procedures in place to react faster and more effectively than your competitors when major disruptions do strike, you’re positioning yourself to gain a meaningful advantage over them. 

2. The Staggering Task of Mapping Your Supply Chain

If you’re a larger company or manufacturer, then you almost certainly have a complex, sprawling supply chain with suppliers in regions all over the world and networks that are three, four, or five tiers deep. Arguably the single most pressing task organizations need to carry out when beginning the process of cultivating operational resiliency is mapping out those supply chains. One of the most critical, non-negotiable characteristics of a risk management program is visibility into your supply chain and transparency among your suppliers, and working toward that objective means understanding who all your direct and sub-tier suppliers are, their geographical locations, and the network of relationships between them. Ultimately, your goal is to grasp, on a highly precise, nuanced level, exactly where all your components are coming from. 

As we learned at Bose, mapping your supply chain can be a long, arduous, and sometimes overwhelming task. It’s a multifaceted endeavor that requires utilizing the appropriate technology, deepening relationships with suppliers, and communicating internally with commodity managers and other stakeholders. To execute an undertaking of this scope and complexity, it helps to start with small, modest steps. Strategic sourcing professionals should use segmentation to break up their supply chain based on divisions or product lines. Once they’ve carried out this segmentation, they can troubleshoot mapping practices on smaller, more manageable projects that will help them develop procedures and protocols that can eventually be scaled to cover the entire supply chain. 

In other words, you don’t want to be building the plane and piloting it at the same time. If you can experiment with a finite, contained number of suppliers and sub-tiers, you can develop an efficient system that can then be applied to much larger parts of your supply chain. 

3. Building Strategic Relationships with Suppliers 

One aspect of supply chain resilience that often gets overlooked—especially with companies that haven’t actually gone through the process of building out this kind of program—is the need for a very collaborative relationship with suppliers. Commodity managers and strategic sourcing professionals can’t execute everything required for a comprehensive risk management program in a vacuum. Rather, they need to obtain a substantial amount of information from suppliers, including documentation, sub-tier supplier data, and internal processes. The prevailing question is, how do you go about doing that with a collection of suppliers that might not always see how that level of time, effort, and transparency benefits them? 

For larger, more powerful companies, the answer might be obvious. If they have tens of thousands of orders with a specific supplier, they can press down on their leverage in that relationship, and even threaten to take their business to another manufacturer. They’re essentially able to exploit the power dynamics, and the scale of the revenue they’re supplying, to pressure their supplier into complying with their transparency requirements.

Small and medium-sized enterprises (SMEs), on the other hand, need to embrace a less confrontational, more cooperative strategy. Rather than threatening or coercing their suppliers, these smaller organizations should be portraying these efforts as a positive, win-win measure for both stakeholders. After all, when suppliers and their end-customers are in greater alignment and have a more synergistic relationship informed by greater visibility, it allows both parties to work more effectively in times of crisis. When a major disruption impacts the supply chain, they can each respond, communicate, and collaborate with a level of speed and synchronization that is mutually beneficial. That’s the kind of proposition that SMEs should be bringing to their suppliers. 

4. Benchmarking Supply Chain Resilience Strategies

A lot of organizations that are in the early stages of conceptualizing risk in their supply chain and implementing mitigation strategies have a hard time gauging their performance. They’re not sure how effective or advanced their processes are, especially in the wider context of their industry or the corporate landscape more broadly. When we started the risk management program at Bose, for example, we were really working in the dark. In order for businesses to be able to progress beyond their initial blueprint and mature their operational resiliency, they need to employ benchmarking. When you have the capacities and resources to compare your practices to some of the more sophisticated, longstanding programs out there, it can serve as a profound catalyst for growth and transformative leaps forward. 

But how do you go about benchmarking if you work in a competitive industry, or if researching the processes and structures of other companies isn’t necessarily feasible? The answer, in many cases, is to become a member of an industry group or trade organization. At Bose, we were a member of the Responsible Business Alliance, an industry coalition focused on best practices in the global supply chain. Our membership in RBA and the relationships and dialogues we established there helped expose us to the new ideas and paradigms we needed to continue maturing our program. 

In an area of business as structured, data-dependent, and relatively young as supply chain resiliency, it can be critical to absorb other perspectives, performance metrics, and techniques. Industry groups can provide an ideal vehicle for that dynamic process to take place. 

Summary 

At the height of the COVID-19 pandemic, an article in McKinsey addressed the suddenly surging importance of building supply chain resiliency. The authors explained how resilience is “not only a matter of awareness, but of setting an intent across the organization, clearly communicating to the entire workforce, and taking tangible action to address the immediate and long-term risks.” A strong risk management program follows these tenets. It establishes clear intent from the outset; prioritizes communication with all stakeholders; and takes proactive measures to mitigate risks before they surface. 

Achieving operational resiliency is a multidimensional project that should not be perceived as something to be accomplished overnight. Rather, it’s progressive and cumulative, with strategies and expertise that build on each other over time and gradually gain traction within an organization. And while it’s not necessarily the kind of quantitative project that will quickly win over executives with ambitious ROI projections, it is an increasingly critical feature of a modern business that wants to skillfully navigate the overabundance of threats and fragilities in our delicate global supply chain.