Preface
In today’s globalized world, supply chain stability has become crucial for sustainable business operations. A series of international events, from the U.S.-China trade war to the COVID-19 pandemic, and more recently the Russia-Ukraine conflict and Middle East tensions, continuously test the resilience of the tightly interconnected global supply network. Even though the pandemic has subsided, the bullwhip effect it triggered continues to disrupt industrial order. Taking the textile industry as an example, from the outbreak of the pandemic in 2020 to 2024, the entire sector has gone through a process from actively pursuing orders, to cautiously placing orders, and then to actively destocking, fully demonstrating the volatility of supply chains.
Frequent Black Swan Events Affect Supply Chain Stability
Many factors can affect supply chain stability. Geopolitical risks, such asthe Israel-Hamas conflict and ongoing tensions in the Middle East, have led to attacks on merchant ships in the Red Sea, forcing reroutes and disrupting global shipping. Climate change is equally significant. With 2023 being the warmest year on record, one immediate effect has been a 36% reduction in large vessel traffic through the Panama Canal due to drought. Shipping companies must either reroute or face traffic congestion, potentially costing up to US$200 million. These events highlight the vulnerability of global supply chains to both political and environmental challenges.
Emerging technologies are another potential source of supply disruptions. While digital tools likeAI and internet technology enhance supply chain management efficiency, they introduce new threats. These include increasing cyberattacks, disinformation scams, and discriminatory biases from improper data training.
Enhancing Industrial Resilience: from Reactive to Proactive Preparedness
To address complex and ever-changing challenges, companies must transition from reactive responses to proactive preparations. World Economic Forum (WEF) and Kearney research reveals that post-pandemic, companies are improving their ability to manage supply disruptions. This improvement extends beyond merely increasing inventories or benefiting from reduced demand in certain sectors. Crucially, companies are now proactively implementing supply chain resilience strategies, preparing themselves for future potential risks.
This shift in corporate strategy expands beyond cost efficiency and competitiveness, now incorporating agility (for managing short-term shocks) and resilience (for sustaining long-term advantages) to address unexpected supply disruptions. Companies can bolster supply chain resilience through various methods, including improved management of critical raw materials, diversification of procurement sources, and strengthening of local supply networks. These approaches enable companies to better withstand and adapt to unforeseen challenges in the global supply landscape.
Taiwan’s semiconductor industry is vigorously pursuing domestic production of materials and equipment to minimize reliance on specific countries or markets. An increasing number of companies are establishing manufacturing bases beyond China and implementing regional or global production capacity management systems to mitigate potential supply chain disruptions. For example, numerous PCB (printed circuit board) manufacturers have recently expanded their operations in Southeast Asian countries like Thailand and Vietnam, bolstering the global PCB supply chain’s resilience.
In the process of enhancing resilience, digital tools are crucial for managing complex supply chains, serving two primary functions. Firstly, they enable smart manufacturing and digital operation management within factories, enhancing production line flexibility for urgent orders. Secondly, they facilitate the supply chain’s digital transformation, improving end-to-end information transparency. This allows for swift, cost-effective adjustments when unexpected disruptions occur, ensuring seamless adaptation to changing circumstances.
Leveraging Key Technologies to Enhance Supply Chain Resilience: Two Companies’ Strategies
Frost & Sullivan, a world-renowned consultancy specializing in company transformation, forecasts that eight pivotal technologies will shape supply chain evolution by 2030. These include AI/5G planning, circular supply chains, decentralized manufacturing, near-shore manufacturing, omni-channel supply chains, zero-carbon shipping, digital supply chain twins, and cloud-based shipping management. A company’s ability to swiftly adopt and implement these technologies within its operations will be crucial in determining its competitiveness in this rapidly evolving landscape.
Case 1: Bayer
Bayer, a global industry leader, encountered a significant challenge which was excessive dependence on an optimized international logistics network. Market demand fluctuations often forced them to resort to costly air transport as a stopgap measure. To tackle this issue, Bayer overhauled its supply chain strategy by establishing a smart data hub enabling end-to-end digital operations and implementing a customer-focused, data-driven approach to streamline its operational supply chain. This transformation aimed to enhance flexibility and responsiveness to market dynamics.
The cornerstone of this new innovative approach is a decision-making framework that synthesizes data from diverse sources. Through a real-time monitoring and alert system, staff can proactively plan based on incoming orders, rather than scrambling for last-minute solutions or resorting to costly expedited shipping This strategy demonstrated its efficacy during the Red Sea merchant ship attacks, enabling Bayer to mitigate sales losses, prevent inventory buildup and freight costs spikes, while simultaneously reducing the carbon footprint of their cargo shipments.
Case 2: New Balance
American sportswear manufacturer New Balance, founded in 1906, took a unique approach in the 1970s and 1980s. While most athletic brands shifted production to Asia, New Balance retained some manufacturing in the U.S. The company’s core strategy of diversifying manufacturing bases is guided by two key principles. First, they strategically allocate production targets for overseas facilities, using a 60-30-10 split among three locations for each shoe model. This approach mitigates risks associated with potential plant shutdowns. Second, New Balance cultivates strong supplier relationships, enabling rapid sourcing shifts when necessary. These principles ensure flexibility and resilience in their supply chain.
New Balance has invested heavily in digital operations management to support the rapid scheduling of its diverse production bases. They use 3D modeling and digital systems to swiftly transmit product design specifications to various manufacturing facilities. Simultaneously, the company continually updates its enterprise resource and supply chain planning software. By incorporating systems from Microsoft and o9 Solutions, New Balance centralizes all manufacturing capacity scheduling. Additionally, they leverage AI forpredictive supply and inventory planning. These technological advancements enable New Balance to efficiently manage its complex, multi-location production network, ensuring agility and responsiveness in their global supply chain operations.
These strategic initiatives bolstered New Balance’s operational resilience, effectively mitigating supply chain disruption risks. This approach proved crucial during COVID-19, when global supply chains faced partial shutdowns, enabling the company to maintain continuity in its operations.
Conclusion
The landscape of supply chain disruptions is evolving, and the industry needs to continuously enhance its resilience. Supply chain resilience is inherently multifaceted and intricate. In developing resilient supply chain management, companies must consider their unique business attributes and industry position. Additionally, they should implement transformative strategies. This approach enables firms to capitalize on opportunities arising from global value chain regionalization, identify their distinct market niches, and forge new competitive advantages.
