Chapter 1
Driving end-to-end visibility
Too many organizations today are blind to bottlenecks and shortages — until the fallout is right in their laps.
In the wake of pandemic-related lockdowns, companies made investments in greater supply chain visibility and inventory management — crucial steps toward gaining a full picture to help contend with sudden or long-term disruption. However, EY research shows they still need to work on the data connections and end-to-end visibility, beyond their own internal operations. Key steps to take for additional monitoring include:
- Identify critical parts and critical Tier N suppliers (the suppliers of your suppliers and beyond): It would be a staggering and perhaps impossible effort for most large organizations to gain full visibility down to the Tier N level for all their suppliers. Setting priorities based on risk is a worthwhile starting point. The supply chain visibility that businesses require must factor in data from these suppliers to adequately surface risks and create contingencies.
- Develop relationships centered around trust: Many suppliers are constantly worried about being disintermediated, so they may be wary about providing too much data. Those organizations that have succeeded in working with their key suppliers focus on building trusted relationships and developing areas of mutual interest as business partners to plan for disruption. Going alone isn’t a good plan for either side: the supplier can get stuck with inventory when orders don’t materialize, and your own organization can encounter bottlenecks if just one part isn’t available for a complex product. With trust, ecosystem partners can then use tools such as platforms that encourage collaboration and transparency about performance, gaining the ability to collectively adjust plans and make better decisions based on visibility and analytics.
- Revisit contracts and create benchmarks: Contracts with suppliers can stipulate expectations around what data should be made available, such as inventory holdings, and including access, audit and review rights. Many companies today have such stipulations around meeting environmental, social and corporate governance (ESG) objectives — for example, to know more about child labor and other human rights concerns, or about climate change impacts that are increasingly being debated under nonfinancial reporting frameworks.
- Deploy technology in your operations to build a control tower: For companies with more mature supply chain capabilities, IoT sensors on manufacturing equipment and tracking mechanisms in logistics — along with external data from suppliers — can be united with AI and machine learning to produce actionable insights. Relying on these technologies and dashboards, control towers act as visibility solutions for surfacing bottlenecks, responding to events, optimizing resources and making recommendations on what to do next.
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Chapter 2
Enabling simulations and risk monitoring
With a shift in mindset, better insights from data and new technology capabilities, an organization can prepare — and thrive.
No doubt your business is always performing analyses of some sort — for instance, what would be the impact if you closed two warehouses in favor of one in another location? However, many companies today lack a sophisticated capability for scenario analysis in their supply chains. These efforts not only prepare you to minimize risk, but also to consider how sudden changes can trigger new opportunities for those who are most prepared. Here are actions to take for organizations that have made advances in their supply chain visibility and data capabilities:
- Set priorities and shift your mindset as a first step to modernizing risk management: Organizations need to maintain an adaptive risk universe to identify emerging upside, outside and downside risks to prepare for change and take actions as needed. Today, risk management is not just about confronting the top 10 to 20 risks each year: it must be responsive to environments that are constantly evolving, within and outside of the organization. Narrowing your focus to what’s most important is a crucial place to begin for developing foundational business continuity, disaster recovery and crisis management plans, including critical dependencies and alternate recovery strategies. Analyze the cause and effect of key risks to perform scenario planning based on your organization’s strategic priorities, and quantify the risk impact to priorities. Technology is providing new ways to strengthen these plans with actual data.
- Explore tools for scenario planning and simulations: Supply chain simulation software brings in data about weather patterns or disasters, hotspots for social unrest, and geolocation information on parts — allowing you to predict and quantify risks, such as a tsunami in East Asia, a blockage in a major canal or political unrest anywhere in the world. Risk intelligence engines can also monitor news sources and other external data to anticipate scenarios and risk events. Routine scenario planning not only helps minimize disruption, but also identifies new business opportunities. Companies can look at their entire supply chains and ask questions about where products are made, how they’re distributed and whether their supplier bases are diverse enough to withstand shocks. Integrate these analyses into governance, risk and compliance (GRC) programs to be dynamic on how the second and third lines of defense are monitoring emerging risks. It’s also vital to routinely test and update these plans as the business landscape shifts and your strategies evolve.
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3. Go further with a digital twin. Digital twins are virtual replicas of a supply chain (or a product or process) to act as a laboratory of sorts for simulations and risk monitoring. A supply chain is recreated virtually from end to end through a more aggregated lens, involving some of the data points and sources we’ve already discussed — as well as service levels, network optimization and others. Digital twins can connect to your Enterprise Resource Planning (ERP) system or the systems from your suppliers, and (less ideally) manual data downloads can be used as well. This parallel version of the supply network supports prescriptive decision-making based on the world as it is, not gut instinct. As noted earlier, if digital twins are focused on the right areas, they can be a powerful tool to improve resilience.
4. Use these capabilities to approach risk differently. Maintaining resilient and networked supply chain and manufacturing processes are critical to customer innovation and responding more quickly and proactively to changing dynamics — and reframing your future. Anticipating disruption and its impact through these capabilities equips your organization to better identify not only downside and outside risks but upside ones as well: the risk of letting an opportunity slip through your fingers. Business leaders that look beyond managing risk to building stakeholder trust and reframing risks into opportunities can reposition their organizations for long-term value creation. Crisis management will always be important — but the bigger play is to reimagine your business, not merely wait to be disrupted and play damage control.
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Summary
Given the waves of disruption ahead, operational resilience needs to be a priority every day, not just in times of crisis, to meet changing expectations and minimize potential impacts. End-to-end visibility, simulations and risk monitoring equip organizations to step-change their resilience — to better anticipate issues, mitigate their risks, and also offer road maps for seizing the opportunities within them.