The shockwaves from the 2008 global economic crisis hit supply chains hard. Credit markets dried up, leaving companies without significant cash on hand and unable to make payments and fund inventory, consumer demand dropped off, and buyers found suppliers could no longer produce. Many shippers had too much capacity and too little revenue, and suppliers became concerned that customers wouldn’t be able to pay their bills.
Many companies took the 2008 crisis as a wakeup call to enact stronger defenses against supply chain disruption, but some still lag far behind. The World Economic Forum (WEF) released two reports on supply chain security, New Models for Addressing Supply Chain and Transfer Risk and Building Resilience in Supply Chains, suggesting companies use adaptable and agile strategies, better data-sharing platforms and partnerships to combat threats.
The first defense against supply chain disruption is to develop trusted networks of partners and supply chain stakeholders. Cloud technology is one way to create a strong network—with all supply chain participants able to access a large pool of data on the cloud, they can react quickly and decisively to supply chain disruption. Companies that only have an ERP system will struggle to find information on current inventory, productivity or the availability of alternative logistics providers and suppliers.
The importance of the ability to share information among collaborative partners has outmoded in-house legacy software designed to manage data solely inside the walls of a company. WEF’s recommendations include “establishing reliable dashboards for macro-level flows and disruptions through key infrastructure” and “increasing the flow of information across end-to-end networks to improve transparency at all tiers of the supply chain.”
According to global supply management firm GT Nexus, “cloud technology can enable these things where ERP cannot—the quality and relevance of data needed to make dashboards reliable can only be achieved in a networked, real-time environment.”
Companies most successful in supply chain risk mitigation recognize, however, that waiting until disaster strikes is a recipe for failure. Instead, they assess their environment for potential threats in advance of a disaster, and review the efficacy of its reaction afterwards. Companies can assess potential supply chain threats; build transportation and production scenarios to create backup plans; understand exactly how the disruption will result in a financial hit; and assign key roles and document the plan. Following an incident, companies can ask whether backup suppliers performed adequately during the disaster; if the region is still a good fit for sourcing; and how competitors fared comparatively.
Supply chain and transport risk exists along the entire continuum, so it’s important to evaluate multiple scenarios and suppliers. According to GT Nexus, “while a bid typically asks for prices from carriers based on estimated demand and allocation, those numbers won’t be sufficient to create a contingency plan for possible disasters.” In other words, a seemingly low-cost carrier may not be such a good deal in the event of a supply chain disruption.
WEF also identifies four innovations that have resulted in fewer supply chain risks: lean supply chains make the causes of frequent failures obvious; globalization has created the opportunity for diversification of supply; specialized production and scale accelerate the learning and ironing out of risks; and IT-enabled visibility gives advance warning of problems while enabling decentralized solutions.
Companies wishing to avoid significant disruption in the event of a supply chain disaster may benefit from the ability of cloud hosting to bring suppliers and buyers from all over the world together on one platform. With better collaboration and visibility along the supply chain, the effect of supply chain disasters can be effectively mitigated.
To download a white paper on the cloud's role in supply chain management, visit GTNexus.com.