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If there is one thing that organisations have learned from the Covid-19 pandemic, it’s how vulnerable global supply chains can be. While threats to supply chains are hardly new, the disruption can be costly.
Averaging across industries, says consultancy McKinsey companies can now expect supply chain disruptions lasting one month or longer to occur as frequently as every 3.7 years. Even a “very brief” one-month disruption can result in sizeable earnings gap for companies, according to the consultancy
That’s why it is critical for businesses to monitor the resilience of their supply chains and mitigate risks as far as possible.
But it’s no easy task, as around half of 1,200 global supply chain professionals argue that complexity had increased in the past year, while 91% said their firms could not keep up with challenges. And with new risks already on the horizon, it’s clear that quick fixes will no longer be fit for purpose.
Stress-testing your supply chain can be the best way of identifying and understanding risks to it and it’s something that companies should be performing regularly. And where gaps in the chain are found, they need to be resolved urgently.
McKinsey suggests a “four step process” for creating more resilient supply chains:
• Identify the most relevant events and risks
• Define possible scenarios of outcomes and assess their high-level impact
• Develop response strategies for prioritised risks; and incorporate supply chain risk management into regular decision-making and planning processes
A trend that is transforming the way global supply chain managers identify risks has been the move towards greater digitalisation, which can help identify issues before they occur.
One such innovation is the Digital Freight Alliance (DFA), launched by DP World earlier this year, an association that helps Freight Forwarders do business more effectively and keep trade flowing by bringing processes online through a suite of web-based tools. Covering sea, air and land shipping worldwide, the DFA digitises the management of logistics for freight forwarding to increase the efficiency, visibility and resilience of global supply chains.
Not only can the DFA help businesses mitigate risks across their supply chains, it can also help them grow and meet their own customers’ needs during challenging times.
Shortening the chain
Another way that global businesses can mitigate risk to the supply chain is to make it considerably shorter by setting up domestic manufacturing hubs. This can be seen in the emergence of eastern Europe as a manufacturing hub which has helped lower many companies’ reliance on Asia.
It’s not the cheapest option, though. A recent report by Bank of America suggested that reversing the multi-decade manufacturing shift from the US and Europe to Asia could cost $1 trillion over five years, not including the impact of operating costs.
Of course, shortening the supply chain doesn’t have to involve the establishment of new domestic hubs and the expense that comes with it. One way that DP World is helping to mitigate risk is by making full use of port-centric logistics.
With a global network of ports, terminals and economic zones comprising 150 operations in more than 50 countries DP World is bringing warehousing closer to port and to facilitate the movement of goods and manage costs.
An example of this can be found in the Caribbean, where the DP World Caucedo Logistic Park has been developed as a regional hub with warehouse storage in the economic free zone. This allows large exporters to the region to store their products for one year or more at the Dominican Republic port without paying taxes, duties, or customs fees. International exporters are able to lease warehouse space at the transhipment port and, effectively, cross-dock their Caribbean-facing goods.
Don’t be afraid
Against an evolving risk landscape, supply chain managers need to embrace disruption or suffer the consequences.
It’s something that managers will have to dedicate increasing time to in the future, particularly as the number of ‘known unknowns’ – such as potential trade shocks and climate-related events – grows, and businesses become more cognisant of ‘unknown unknowns’ – like Covid-19.
While planning for disruption and testing your global supply chains for resilience won’t stop your business being impacted by unexpected shocks, it will make you better prepared to meet them.
But what’s just as important as planning for supply chain disruption is the job of finding the right partner – one who understands your business needs and how best to meet them.
At DP World, our clients can be assured that we’ve already done much of the hard work for them; our experience in facilitating global supply chains means we can help them meet each challenge head-on.