Companies need an understanding of their exposure, vulnerabilities, and potential losses to create resilience strategies for their supply chains, writes McKinsey Global Institute in a new report. Targeted measures taken before an event occurs can mitigate the impact of a shock or speed time to recovery. As more physical assets are digitized, for example, companies will need to step up investment in cybersecurity tools and teams.
One of the most important steps is building more redundancy into supplier networks. Relying on a single source for critical components or raw materials can be a vulnerability. In fact, even if a company relies on multiple suppliers, they may be concentrated in the same place. Taking the time to identify, prequalify, and onboard backup vendors comes at a cost. But it can provide much-needed capacity if a crisis strikes. Auditing and diversifying the supply chain can have the added benefit of reducing carbon intensity, and raising environmental and labor standards.
One way to achieve supply chain resilience is to design products with common components, cutting down on the use of custom parts in different product offerings. Auto manufacturers are perhaps the most advanced in this regard, having implemented modular manufacturing platforms that share components across product lines and production sites.
Physical assets may need to be hardened to withstand natural disasters. In regions that are vulnerable to worsening hurricanes and storm surges, this may involve installing bulkheads, elevating critical machinery, adding more waterproof sealing, and reworking drainage. Plants located in earthquake-prone areas may need seismic retrofitting. Companies can also build more redundancies into logistics.
Classroom discussion questions:
- What protections can be added to manufacturing plants?
- Refer to Table 11.3, “Supply Chain Risks and Tactics'” on page 450. What additions could you provide relating to the current pandemic?