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Supply Chain Management is an Increasingly Critical Component of Operational Resilience
After a year of focus on supply-chain resilience in light of the coronavirus pandemic, issues with global supply chain have made national headlines again when a large cargo ship got stuck in the Suez Canal in March 2021, blocking hundreds of other vessels, illustrating how fragile our global supply chain can be.
The Suez Canal is considered a critical point in the global supply chain.
It serves as a portal between the East and the West sides of the world and functions similarly to a superhighway with millions upon millions of products moving through its ports. From oil to technology to textiles, many of the most critical items we need to keep the world going traverse through this point every day.
The International Chamber of Shipping (ICS) estimates that some $3 billion worth of cargo pass through the canal daily, which rapidly came to a halt when a container ship got stuck on March 23.
The vessel, Ever Given, operated by Evergreen Marine Corp, created a naval traffic jam of more than 350 other vessels behind it.
The ship remained stuck through March 29, when, following days of efforts, a combination of a king tide, dredgers, and tugboats freed the massive cargo ship, reopening the canal to the backlog behind it.
How the ship, which spans nearly a quarter-mile in length, got stuck is still under investigation. The owners reportedly said winds and a sandstorm contributed, but other officials have rebutted that claim, saying either technical or human issues may have contributed.
If ICS’s estimates are accurate, this single mishap likely delayed tens of billions of dollars of products moving through the canal, with far-reaching financial and other impacts that have yet to be tallied.
The pandemic and this recent canal crisis highlight some of the growing concerns and issues raised in BCI’s most recent Supply Chain Resilience Report, which demonstrates how an increasing number of organizations are using lessons-learned to rethink how they deal with supply chain risks.
Of note, in addition to dealing with challenges the pandemic created across all industries, there were more supply chain disruptions in 2020 than any previous year where BCI has conducted this study.
Almost 30% of organizations—27.8%—say they had more than 20 supply chain disruptions last year, which is almost 5% more than in 2019. While the pandemic led the list of causes, disruptions were far-reaching, including natural disasters and fallout from Brexit and related issues.
As a result, organizations are now focusing on how to diversify their supply chains, particularly those who relied on single-source suppliers or vendors highly centralized within a single geographical area, for example China and other parts of Asia.
While some organizations were already working toward this goal prior to the pandemic, many only included tier-1 partners and have consistently failed to conduct critical assessments (or require tier-1 suppliers) of other suppliers further down the supply chain.
The BCI report reveals that more than 40% of supply chain disruptions during the pandemic were at tier-2 or beyond. So, while we see some improvements in tier-1 relationships, this emphasizes how important it is to repeat our processes—and extend our expectations and requirements—further down the supply chain.
While some results within the report cast a cloud over how organizations have traditionally dealt with supply chain issues, there is good news.
These high-profile events are bringing the value of business continuity—and the role of the supply chain and customer needs for operational resilience—front-and-center for executive teams.
According to the BCI report, about 83% of respondents say management is increasing commitments to addressing supply chain risks at medium or high levels and that includes an increased push for investments in staff and technology for business continuity.
As a result, we’re seeing a growing number of organizations now working with their critical suppliers to ensure they have business continuity programs in place.
The report says that more than 75% of organizations are making this move and ensuring their key suppliers have business continuity, an increase from about 67% in 2019.
And instead of just relying on a check-box approach for supplier compliance, organizations are giving this more attention with more than half of respondents saying they now request full business continuity program details from their suppliers, instead of just asking if they have plans in place.
While these are certainly great gains, we can see more room for improvements, especially when it comes to early interactions with potential suppliers.
Only one out of six organizations say right now they do due diligence on key suppliers during procurements and many—almost a quarter—say they don’t even begin this process until after they have signed contracts.
One of the stumbling points for these key and early vendor assessments may be directly tied to the volume of manual tasks many companies have in place when they engage with potential supply partners, much of which is often handled in word processing programs, spreadsheets, or binders of printed forms.
Organizations that have yet to move toward a technology-based business continuity and operational resilience software solution may find it far more efficient and easier to manage if they migrated these processes, including vendor assessments for contract and SLA renewals, into a business continuity management software solution.
Today, more than half of organizations have made this transition, with about 55.6% saying they’re using technology to analyze and report on supply chain issues, including supply chain mapping.
While that’s trending in the right direction, there are still many more benefits of adopting these technologies for organizations who have been slow to make this transition.
Interestingly, about 57.6% of respondents say that COVID-19 was a driving factor that finally fueled organizational adoption of this technology and related tools, but we shouldn’t wait for the next big event to bring other organizations on board.
If your organization still hasn’t implemented a business continuity solution to analyze, map, and manage all of your supply chain issues and related risks, Castellan can help.
Check out this white paper about the impact of global labor on supply chain continuity for more insight on potential resiliency consequences associated with supply chain disruptions, as well as key recommendations on how to improve your supply chain resilience.
Have other questions? Contact us and we’ll be happy to help.
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