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  • Writer's pictureMarco Feiten

How to achieve more supply chain resilience in 10 steps

Since the COVID-19 pandemic, the focus of supply chain risk management has been on logistics - and as has recently been shown once again, this is certainly expedient. Container ships are currently taking long detours around the Cape of Good Hope because the route through the Red Sea has become too dangerous due to the Houthi attacks. And with the geopolitical tensions in South East Asia, new shocks may be on the horizon.

In this respect, the risk management of their supply chains has become immensely important for companies. And it's not just about logistics, but also about effectively monitoring suppliers, recognising financial risks or effectively limiting cyber risks, for example. Below we show you ten effective steps for greater supply chain resilience:

1. The basics: create contingency plans for logistics

If a risk materialises, the impact often depends on the speed of response. This, in turn, can be significantly reduced if there are already well thought-out contingency plans in place. Of course, not everything can be predicted. However, this cannot and should not be a reason for not taking this elementary step. It is important to have at least a planning template for as many eventualities as possible. This will save an immense amount of time in an emergency - and thus limit the damage.

2. Tried and tested for decades: Utilising the PPRR model

The PPRR model (Prevention, Preparedness, Response & Recovery) is an integrated approach that is used in disaster risk reduction and emergency management and describes the various phases of the disaster cycle. The model was developed by the American Governor's Association back in 1978.

Graphic: State of Queensland, 2022

3. Create transparency - for all stakeholders

The German Supply Chain Act (LkSG) and the Corporate Sustainability Due Diligence Directive (CSDDD) recently adopted by the European Parliament are not the first time that companies have been required to gain and create more transparency in their supply chain. As part of the ESG megatrend, supply chain transparency is also an issue for investors, supervisory authorities and rating agencies. It is therefore no longer a "could" for companies, but a "must". And ultimately also helps to achieve greater sustainability and resilience.

4. Nearshoring "rulez" - focussing on more regional procurement

In economics, we know the principle of comparative cost advantages according to David Ricardo. It states that a person or nation should concentrate on the production of goods for which it has lower opportunistic costs than others. In this way, countries can achieve considerable benefits through specialisation and trade. This was and is a powerful driver of globalisation. However, during the pandemic it became clear that we are unable to produce enough medicines ourselves, for example, or have become too dependent on production centres in India. And the geopolitical tensions surrounding Taiwan - in addition to the systemic conflict - also have to do with the dependence of numerous products on the microchips that are only produced there.

In addition to logistical uncertainties, long supply routes are also subject to price risks (think of the explosive rise in energy prices following the start of the war in Ukraine) and are ecologically questionable. It is therefore advisable for companies to carefully consider whether it is not better in the longer term to look for suppliers and distributors closer to their centre of operations or the final destination of their supply chains. This would also shorten the cycle times for product delivery.

5. Focus on diversification - multi-sourcing

In addition to more regional procurement, resilience in the supply chain can of course be significantly increased if critical components are sourced from several suppliers, e.g. at different locations.

However, this strategy can only be implemented if the components are compatible and of the same quality wherever possible. In addition, this measure undoubtedly increases the complexity of procurement and could also create price disadvantages if smaller quantities are purchased from each supplier than if only one supplier were used. One possible way out: communicate the disadvantage to your own customers (and other stakeholders) as a clear advantage for you and in return enforce price increases or longer contracts, which in turn provide more planning security.

6. Define and utilise KPIs

Regardless of a company's position within the supply chain, it is obviously crucial to work with carriers that can deliver consistent and reliable results. Metrics to monitor include load time, transit time, maintenance scheduling and the average number of stops along a given route. By analysing this data, companies are better able to select a provider that meets their requirements.

It is also useful to define KPIs and make data-based decisions for other aspects of the supply chain.

7. Simulate risk scenarios

E-commerce has not only become so big because of the convenience of online ordering - its success is based to a large extent on the perfection of data collection and utilisation.

The same applies to risk management, even if it is far more challenging to collect, process and aggregate relevant data. However, if this data is available, not only can current developments be visualised and tracked, but future scenarios can also be simulated. This is an area that scrioo is working on, for example, and will be providing companies with corresponding tools from 2025.

8. The modern-day thieves are sitting in front of computers - protect yourself against cyber risks

Supply chains serve as potential entry points into an organisation's systems, as there is no control over the security measures implemented by partners further along the supply chain. In the latest Sophos Threat Report: Cybercrime on Main Street, IT security experts report that in 2023, the supply chain in business and IT infrastructure was increasingly attacked and the vulnerabilities often lay in the remote monitoring and management software of a service provider.

Accordingly, companies should define compliance standards for all third-party providers, including manufacturers, suppliers and retailers. And since humans are usually the weakest (and most powerful) link in the chain, employees must be continuously trained and informed.

9. Know your supplier - bring together essential data for scoring

While Know your Customer (KYC) is an established standard in many companies, this does not apply, or only partially applies, to their own suppliers. It is often and understandably argued that purchasing cannot do this - after all, how is this possible when there are hundreds or even thousands of suppliers and they change from time to time?

Once again, the answer lies in data and systems. There are plenty of providers of governance information, providers of PEP and sanctions list screening, credit and creditworthiness ratings, etc. The real key is to bring this information together in a supplier management system or at least a supplier evaluation system.

In addition, supplier monitoring based on media analyses offers immense advantages:

10. Monitor risks in real time - with scrioo

RFID tags have proven their worth in tracking goods. This allows transport routes, for example, to be monitored and deviations quickly recognised.

A media analysis also offers great benefits, as it can also provide relevant information in real time - about transport restrictions due to accidents or natural disasters, information on business development or personnel changes at suppliers through to certain strategic issues that are important for the supply chain, such as critical raw materials, special parts or manufacturing processes.

This is exactly what scrioo delivers. It is important that the media analysis is set up in such a way that only the most relevant information is obtained for companies - because millions of new media contents are created and published worldwide every day (in numerous different languages, moreover), so that their screening, categorisation, clustering and evaluation can only be managed with the help of specific AI.

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