Insights from our November 2021 webinar
Even before COVID-19, Brexit, the increasing incidents of extreme weather and heightened geopolitical tensions, supply chain professionals dealt with crises on a business-as-usual basis. But in this brave new world defined by continued volatility, boosting agility and expanding the range of solutions you can use to tackle supply chain challenges is vital. We consider five ways your organisation can build greater resilience into its supply chains.
This could include organising alternative sources of long-term supply. This kind of move can not only provide a backstop should your regular supplier fail but can create competitive pressure throughout your supplier base and potentially widen the pool of future alternative sources.
Other options such as nearshoring – transferring a business operation to a nearby country from more distant locations – or more fundamental shifts from global to regional sourcing strategies also need to be considered, particularly as today’s volatile conditions look set to continue into next year and beyond.
Coca Cola Enterprises (CCE) is just one company that’s moved to keep manufacturing and sourcing local. It was reported last year that CCE has 17 manufacturing sites across Europe, with 95% of drinks being made in the country in which they’re sold. CCE also keeps much of its sourcing local creating shorter, faster supply chains.1
This kind of local supply model is also likely to reduce logistical risks, as well as delivering greater sustainability benefits, therefore mitigating certain climate risks across the chain.
Working more closely with your tier one suppliers is essential to building greater resilience today. This can sometimes prove uncomfortable, with suppliers perhaps reluctant to disclose stock levels and other commercially sensitive information, but we believe greater openness and alignment is the way forward.
One good example in this space is McDonalds, which is regularly recognised for excellence in how it manages its supply chains. The fast-food giant works to share its success with its suppliers, recognising them through initiatives like its Supplier of the Year awards in the USA, which it presents those suppliers with the most significant positive impact on its domestic operations.2
Resilience-supporting cultures are defined by honesty. Creating environments where bad news on supply chain vulnerabilities are shared early, and where everyone from senior managers to those at an operative level work under a ‘no surprises’ imperative can prove an effective and relatively easy win.
Building a culture of transparency in this way boosts resilience by helping you understand issues earlier, therefore strengthening your ability to act on them faster.
The UK CO2 crisis of recent years caught many in the food and drink sector off-guard, perhaps surprisingly so given the inherent risk of many businesses relying on the two fertiliser factories that generate 60% of the UK’s CO2.3 Some dangerously assumed CO2 would always be readily available.
Visualising your supply chain will help you get a better understanding of how vulnerable you really are across its different points and enable a deeper understanding of how your business could be impacted if, for example, a key resource is in short supply, and how that situation might change with various mitigations.
Digitisation can increase resilience by increasing control and efficiency in an industry where there can still be a lot of paper involved, such as around bills of lading (BoL), the legal document issued by a carrier to a shipper.
Electronic BoLs are a good place to start, but many organisations should be aiming for more holistic and diagnostic digitisation. Creating ‘digital twins’ of your supply chains allows for a wider and deeper understanding of its activities, flows, interdependencies, each of the processes involved and their linkages, as well all of the resources that bring a product to market.
The unique combination of resources and assets that comprise your supply chain extend far beyond the physical assets, such as plant equipment and inventory; they include human capital, digital assets, third party relationships and other critical areas potentially overlooked when thinking about risk and resilience, such as packaging and labelling.
By creating a digital twin of your total supply chain, you’ll be able to identify issues early, move on mitigation measures with agility and build that crucial resilience. Holistic digitisation can empower your organisation to be first in line for in-demand resources, be fleet of foot when it comes to securing alternative suppliers or take whatever mitigating steps required to protect the supply chain before the risk threat manifests.
Many food and drink industry leaders would be well-advised to both broaden the scope of the supply chain resources and risks they look to map, measure and mitigate, and advance the way they achieve this.
More sophisticated players are increasingly turning to scenario-building to grow supply chain resilience. Scenario planning allows you to understand the chances of a risk manifesting, its financial impact, and your organisation’s ability to mitigate and the likely impact of a number of different permutations. For example, the effect on sales and earnings before interest, taxes, and amortization (EBITA) of a supply shock that interrupts delivery can be very different depending on how and why it occurred and what mitigations are activated.
Willis Towers Watson has developed a real-time risk and analytics model that provides a framework to digitally enable supply chain portfolio components, allowing you to measure, monitor and visualise each of these elements.
Our supply chain risk diagnostic tool allows users to assess supply chain continuity options while also informing any third-party business interruption coverage your business may be considering. In this way, risk and analytics models can support risk professionals in advocating for the cover they believe necessary to protect the business. Willis Towers Watson’s framework translates supply chain information into an interactive map and scorecard of risk using real-time intelligence to look at current risk assessments and linkages between supply chain components.
This tool enables organisations to view their supply chain exposures in different ways, for example, as an aggregate of total insured valued, including both your own and third-party risk, or as exposures through a contingent business interruption prism.
This tool also allows users to focus on independent supply chain locations, understand the changing risks and see which areas are most at risk. As well live information on threats including terrorism, coastal floods, winter and tropical storms, and earthquakes, the model also reflects events like COVID-19 live infection rates.
Understanding the prevalence of COVID-19 in a location can enable your organisation to move on mitigating likely staff shortages, with a ticker function telling users whether threat – be it a COVID-19 cases surge or a climate-related risk – is likely to impact your location or a third party’s.
Analytics tools give organisations a framework to assess the ‘what ifs?’. For example, if you cannot ship source materials through the Suez Canal, what are the re-routing options and what would be the impact of each alternate flow?
Having the chance to see how you might change your supply chain in light of dynamic information, or mitigate the live threats to it, works to visualise and then optimise resilience.
To see how our supply chain risk diagnostic tool could support greater resilience in your food and drink supply chain, please get in touch.
1 https://manufacturingglobal.com/lean-manufacturing/factory-fridge-inside-coca-colas-supply-chain
2 https://www.restaurantbusinessonline.com/leadership/distributor-named-mxdonalds-usas-supplier-year
3 https://www.theguardian.com/business/2021/sep/20/co2-crisis-could-hit-uk-food-stocks-well-before-christmas-says-iceland-boss
4 https://www.sei.org/about-sei/press-room/new-assessment-reveals-major-climate-risks-to-global-food-trade-calls-for-urgent-multilateral-action/
5 https://www.lshtm.ac.uk/newsevents/news/2020/one-third-uk-fruit-and-vegetables-are-imported-climate-vulnerable-countries#:~:text=on%20the%20rise-,One%20third%20of
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6 https://www.enisa.europa.eu/news/enisa-news/understanding-the-increase-in-supply-chain-security-attacks
7 https://www.bloomberg.com/news/articles/2021-09-10/u-k-faces-permanent-gaps-in-food-supply-industry-chief-warns
8 https://www.gtreview.com/news/global/freight-costs-keep-surging-despite-shipping-giants-freezing-prices/#:~:text=The%20average%20price%20for%20a,tracks%20the%20cost%20of%20containers
