Resilience in the Global Supply Chain: Understanding 5 Key Ingredients

Resilience is defined as follows:

re·sil·ience

/rəˈzilyəns/

noun

1. the capacity to recover quickly from difficulties; toughness. “the often remarkable resilience of so many British institutions”

2.  the ability of a substance or object to spring back into shape; elasticity. “nylon is excellent in wearability and resilience”

In terms of global supply chains, resilience is determined by an ability to adapt, survive and perform despite devastating and unplanned circumstances such as those we have been dealing with since the Covid-19 pandemic enveloped the world in February 2020.

The Covid-19 pandemic has been disruptive to every company, in every business vertical, in all countries, to all companies and for most people in the world.

The impacts of increased delays, cost escalations, unavailable space, reduced inventory balances, and lost sales continued to escalate through 2021, a year that we hoped would have positioned the pandemic in our rear-view mirrors.

By contrast, the economic impact, as well as the personal toll, have been devastating, and as we enter 2022 the residual concerns are lingering and in some business models are worsening.

Delays, cost escalations and uncertainty plague all global supply chains and have made for very difficult daily management and long-term planning.

All these issues are challenges that must be met by the supply chain executives who manage these responsibilities for the companies they operate in.

Having been through numerous disasters that have impacted supply chains, from hurricanes to tsunamis to winter storms … this pandemic has exposed corporations to new and extended vulnerabilities, never previously seen to this magnitude.

Over the last 35 years and especially in the last 20 months, I have witnessed and participated in various strategies, methodologies, and tactics to deal with these challenges.

An individual’s demonstration of “RESILIENCE” has been a key ingredient to surviving these challenges and keeping his or her organization on an even keel through these turbulent waters.

I believe there are 5 Key Ingredients to “Resiliency in Global Supply Chains”.

-Patience

-Pliability

-Information & Research Gain

-Creative Solutions

-Going Back to Basics

Patience

Those that are too quick to respond under the pressure of the issues and under senior management demands will likely make misjudgments that will make matters worse.

As an example: A logistics manager is losing patience with their service provider, who is having difficulty booking space. Instead of trying collaboratively to find a solution … moves the business to another freight forwarder … to only discover that the new forwarder’s senior management team is prioritizing space allocations to older clients and not new ones.

The logistics manager has now created a bigger hole to get out of.

Exercising patience, along with a collaborative approach, would more likely have brought a resolution that could now be in play. The impatience moved the potential resolution to the back of the line.

Patience comes with maturity, confidence, and experience. Junior-level supply chain personnel lacking tenure need to closely observe senior management – who are hopefully setting an example of a more balanced reaction and approach to disaster.

Reactions by instinct alone, hurried responses and not well-thought-out actions will typically lead to poor choices. Poor choices produce bad outcomes.

Through this pandemic, I have observed many company supply chain executives – both young and old – overreact and make some bad decisions, which placed their supply chain in further jeopardy.

“Patience is a Virtue” is part of an old adage that has never rung truer than in managing global supply chains in 2020, 2021 and into 2022.

Pliability

Pliability is the ability to bend, like a willow tree in the wind. It is all about flexibility, like a gymnast performing at this year’s Summer Olympics in Tokyo.

In Supply Chain, the meaning moves us in a direction where our strategies, tactics and decisions must become molded to the new circumstances we face where demand and capacity have been misaligned for over the past 20 months and likely to continue down that road well into 2022.

It means we must adapt to a completely new set of assessments, quantitative data input, expected outcomes, and circumstances mostly out of our control.

Specifically, in companies with a global footprint, this means underperforming suppliers, unreliable freight services, escalating costs and enormous frustrations in promises made by many and kept by few.

In addition to being patient, in this pandemic, the supply chain executive must take well-thought-out risks and approaches that can offer resolutions to all the obstacles and challenges.

And more importantly, it means that we must be pliable in our approach to attempt solutions not previously tried.

Information and Resource Gain

The Supply Chain Executives showing resilience will have to make better decisions. Better decisions will originate with quantitative data analysis, based on robust information flows.

As an example: A procurement manager for a perfume company that has a major supplier in Guangzhou, China, which accounts for 80% of a particular product line.

The Chinese supplier is having trouble meeting demand. The intuitive procurement manager dives deep with the supplier to find out who supplies them with the raw materials that they seem to be having trouble obtaining in the necessary quantities needed to fill their PO’s.

The procurement manager reached into their sourcing staff to see if they can find some alternative suppliers, which they were successful doing.

This new raw material supplier to their supplier made a big difference in having them mitigate the problems of meeting all the PO requirements.

Information, along with collaboration, resolved the problem.

In today’s world, information can make the difference between success and failure, profit or loss. Supply Chain Managers need to spend considerable time in developing resources to gain information.

Some of these resources could be:

-Friendly competitors

-Supply Chain Organizations: CSCMP, ISM, NIWT, etc.

-Consultants specializing in Global Supply Chain: Blue Tiger International & others

-Internet (search, networking)

-Media: Journal of Commerce, American Shipper & SupplyChainBrain

-Industry Trade Shows

-Advanced Colleges & Universities with Supply Chain Modules

Information that provides useful data comes from reliable sources, comprehensive structure, timely subject matter and from qualified expertise.

The “Gain of Information” is invaluable in making informed and well-thought-out decisions.  Resourcefulness is making clever use of the information gained.

Creative Solutions

This is a time one needs to raise the bar of performance in meeting the Covid-19 Pandemic challenges.

Solutions of the past may not have contemporary applications. Current practices may make the problems even worse.

One needs to “put on the thinking cap” and bring new and creative ideas to the table.

This is directly tied into being patient, pliable, and developing information sources and resources, previously discussed.

An example: A NY-based chemical company operating successfully for 40+ years is having difficulty moving cargo timely and cost-effectively from various Asian suppliers.

Their typical move is product in 25 and 50 Kilo bags and boxes, stowed in 20- and 40-Foot Containers.

They are feeling the pain of 90-120 delays in ocean freight and cost escalations from $2700/per 40’ to $22,500/per 40’ from March of 2020 till now in December 2021.

The delay and cost escalation are devastating the cost-effectiveness in an established supply chain that has worked well for more than 40 years.

The potential of customer loss is great along with margin depletion.

They collaborated with a supply chain consultant who suggested they load the product in 500 kilo super sacks at their supplier facilities and “charter” a Breakbulk vessel to move 20’ container volumes of freight.

This was very much out of their wheelhouse, but they diligently, along with their consultant reviewed the risks, quantified, assessed carefully and took steps to mitigate all the challenges that came to light.

Now, 8 months later, they have had 3 successful charters and have actually reduced landed costs by 10-12%. Their margins are in-line, the customers are happy.  The new and creative approach, with well-thought-out risk management steps, came to a favorable conclusion.

In another example: A Houston-based consumer electronics company purchasing finished products from all over the world, specifically from suppliers in Europe, Asia and the Middle East.

In their standard (pre-pandemic) process, they would bring the goods into their 750,000 sq.ft. distribution facility just outside Houston for quality control work before shipping product to customers in all 50 states, Mexico and Canada. Most customers were big-box retailers.

In this case, their supply chain consultant gave them two suggestions which they studied, assessed, and modified to fit their supply chain; both of which ultimately created favorable outcomes.

For the first option, they approached their larger retailers who were building their own consolidations in the countries they were sourcing from.

They offered the retailers pricing discounts to move the sales from CIF INCO Term to FCA Overseas Consolidation Point. Meaning they would deliver the goods to the warehouse/carrier at the outbound gateway of the country of origin. The retailer would take possession of the goods at their consolidation facility and combine it with other orders and ship as a “consolidated shipment”. The benefits could be freight cost savings and affording the control of the cargo directly to the consignee.

The second suggestion was to make the distribution facility in Houston into a Foreign Trade Zone (FTZ), where duties on sales to US entities were deferred until point of sale.  For goods exported to Canada and Mexico, no duties were paid, as the goods passed through the FTZ and never entered the U.S. economy.

This option took approximately 3 months to assess and implement, and an upgrade in their supply chain technologies became a favored solution.

Other creative solutions are as follows:

All these options present potential solutions to the global supply chain management teams to consider in mitigating the impact of disruptions and to lower landed costs.

Going Back to Basics

I was an athlete throughout my high school and college years, rising to “All American” status. I observed many times when athletic prowess waivered, winning subsided, and performance shattered how the coaches brought us back from the “dark side”.

Experience demonstrates that difficult times are likely to occur. Success is not a straight and smooth line. It is curved, bumpy and has roadblocks.

I observed over the years that quality coaches had the ability to turn circumstances around and bring guidance, solutions and resolve to the challenges we faced.

Their number one solution was to bring the team and the athlete back to basics. In soccer, it was dribbling, passing and running. In wrestling it was take-downs, grinding and stamina build-up, in lacrosse, it was throwing, cradling and scooping.

Practice those basic skill sets and once achieved again, move forward onto more robust capabilities and strategies.

It was a formula that worked over and over again. In my adult life, I utilize the same strategy in golf. When my game goes south I go back to basics: slow the swing, keep the head down and work on the short game.

The basics in global supply chain are:

Summary

We believe … like tragic forest fires that ultimately benefit the woodlands as old timber is destroyed allowing new and stronger growth to eventually flourish … that weak supply chains will potentially be lost and stronger supply chains will survive and prosper.

So it will be for global supply chains.  This latest unprecedented disruption will make supply chains ultimately operate with:

-Greater Efficiencies

-More cost-effective strategies

-Enhanced processes, protocols and SOP’s for future disruptions and affording proactive mitigation strategies

All leading to a mindset of “resiliency” … a great management quality allowing not only survival but growth and prosperity … in the most difficult of times.

 ______________________________________________________________________

Thomas A. Cook is a 30 year seasoned veteran of global trade and Managing Director of Blue Tiger International, based in New York, LA and West Palm Beach, Florida.

The author of 19 books on international business, two best business sellers. Graduate of NYS Maritime Academy with an undergraduate and graduate degree in marine transportation and business management.

Tom has a worldwide presence through over 300 agents in every major city along with an array of transportation providers and solutions.

Tom works with a number of Associations providing “value add” to their membership services and enhancing their overall reach into global sourcing and in export sales management.

He can be reached at tomcook@bluetigerintl.com or 516-359-6232

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Resilience in the Global Supply Chain: Understanding 5 Key Ingredients