A tentative deal has been reached in the West Coast ports dispute. While full recovery is anticipated to take many months, container congestion can finally begin easing. Retailers, consumer packaged goods businesses and manufacturers across America can breathe a cautious sigh of relief. And yet, there are a handful of companies who have come out of the last few months in a stronger competitive position.
What did they do differently? What did one apparel company think about before the strike that allowed them to have no doubt they would get their garments in time for spring season? How did some grocery stores minimize exposure to the estimated US$300m+ a month in meat losses? How did some companies turn an estimated US$7b retail supply chain disruption to their advantage?
It comes down to this. They already understood when and how often the port was disrupted and the impact to their supply chain; they already had alternative plans they could quickly enact to continue delivering on their customer promise; put simply, their supply chain was more risk resilient. Indeed, the West Coast port dispute echoes the findings of a 2013 PwC Survey which shows that companies with mature capabilities in supply chain management and risk management do better along all surveyed dimensions of operational and financial performance.
Today, mature supply chain and risk management capabilities include sophisticated analytics that result in a fact-based likelihood and quantified financial impact of supply chain risks. This helps supply chain executives to understand the trade-offs between higher risk, lower costs and greater efficiencies. And it’s how leading companies during the recent port slowdown were able to rapidly and seamlessly respond.
What is supply chain resilience?
In an earlier article we defined supply chain resilience as the ability of a supply chain to respond to — or recover from — a disruption or change so that it continues to deliver on your customer value proposition, whether that’s guaranteed delivery, quality, or low-cost. Success is when your customers don’t feel the after-shock of a disruption in your supply chain. In this case, empty shelves, delayed deliveries, lower quality finished goods, or potentially raised prices.
How can you know if your supply chain is resilient?
Given the complexity of global supply chains, it’s more and more difficult for managers to get a clear picture of the risks their chains face. Businesses often have several or segmented supply chains to reach different customers in different ways; chains cross borders to make use of lower cost labor; so it’s no wonder that risks can be overlooked. The good news is that the data and analytic capabilities now at our fingertips, combined with industry know-how and mature risk management, mean that companies can take a more rigorous approach to:
- Surfacing risks from a more complex system of supply chains
- Measuring and calculating supply chain resilience
- Quantifying and understanding the probability and impact of different disruptive scenarios
- Evaluating supply chain management choices and decisions that balance different trade-offs, such as cost-efficiencies versus responsiveness
During the West Coast port dispute, companies without a thorough approach to supply chain resilience -- without all the facts -- were taken by surprise. Their supply chains had been optimized, or over-optimized, for cost and efficiency. In sole sourcing through LA/Long Beach to reduce marine routing costs and drive scale efficiencies they hadn’t factored in the risk of union strikes and the resulting impact on their customer value proposition.
What might resilience feel like?
If you’re an apparel company with international operations, wouldn’t it have been valuable if you could have predicted and avoided the significant revenue impact of port strikes? Or what if you could reduce over-investment in a distribution center that was thought to be a high catastrophic risk? How about if you could reduce significant supply base exposure to political risks in emerging markets?
Some companies are doing just that. PwC is helping them define hard, quantified figures for resilience and the resulting dollar impacts. Often for the first time, they’re able to have objective, fact-based discussions about cost/efficiency and resilience trade-offs – evaluating alternative options such as adding new ports, backup suppliers, or even changes to customer demand. Of course, using the latest data and analytics capabilities is only one element in enhancing supply chain management and resilience. But it provides the facts to support the feeling that decisions are often made upon.
Our teams are made up of risk, supply chain, retail, and analytics specialists. And they are helping companies visually see, anticipate and avoid these challenges, and make better investment and resourcing decisions that focus on cost efficiency, but also on resilience, so that they are better prepared for the unexpected. As a result these companies take a first mover advantage to minimize cost, lead-time and customer value impacts, while their peers struggle with disruptions such as LA/Long Beach.
If you have views or questions about resilience supply chain management, we encourage you to share them with us here on this blog. Visit our Resilience Journal site for more information on supply chain management and risk management.