Well behaved boats rarely make history

Of all the turbulence in the money market, cryptocurrency, de-globalization and cross border aggression; what sent global commerce into frenzy is a boat that choked the Suez Canal. At many levels, its very comforting to know that- not all is lost (something that social media constantly keeps reminding us). There is sanity and the world still work on tangible problems and their solutions.

As supply chain professionals, it brings the focus back to basics as we start talking about ‘resilience’ in the supply chain. Not long ago, the topic was really hot and trending in the backdrop of Coronavirus scare and most recently during its vaccine rollout. Resilience can be defined as the degree to which a supply chain is able to achieve desired results in the face of all external risks. The term to focus here is ‘external’, since supply chain for any organization is almost always affected by external factors and thus really hard to manage from within. What organizations can control is their vulnerability to these risks. Also, it reinforces the fact that moving supply chains from one place to other doesn’t eliminate risk.

So, what can be the solution and how can we achieve resilience in our supply chain? This question keeps every supply chain professional up at night. Well, the answer to this is really simple, go back to basics - find the balance between cost and risk, diversify in a way that brings manufacturing closer to distribution.

Let’s talk about manufacturing and the process to bring it closer to distribution.

Manufacturing is a complex process and involves raw materials, intermediate goods, labor, power, infrastructure and so on. It’s almost impossible to control the entire supply chain from raw materials to assembly because of the complexities in each value addition phase involved in manufacturing. Some vertically integrated manufacturing setups try to achieve this, but most rely on T1, T2 suppliers (multiple tier supply chain model) for the supply of raw materials and intermediary goods, which can be finally assembled at the primary supplier to create the final value-added product i.e., finished goods.

In today’s globalized world, supply source is parked at one end of the world, mainly Asia and more clustered around China and SE Asia. This leaves no choice but to produce goods and ship them off to DC located in various continents. This movement of finished goods via sea route (it is still the most preferred shipping mode due to low cost) cause the value in transit to balloon. Since the value in transit is so high, a bottleneck in the delivery of this value would cause tremendous loss and there isn’t much the retailer can do about it. In other scenario, the raw materials and intermediary goods ship to the assembly factories situated in different continents closer to DC. This immediately reduces the unit value in transit, diversifies risk to various continents, gives flexibility to better plan and prepare production with responsive manufacturing to demand and reduces inventory carrying cost since at any time the inventory you carry is mostly raw materials and intermediary goods. This diversification of risk lets you overcome any crisis at any particular part of the world and acts as a multi-nodal system.

Once the production is closer to distribution, the manufacturing of finished goods can be in response to fluctuation of demand saving cost by eliminating the need to carry finished goods inventory, reduces rent and other costs in DC. This can further be pushed into distribution as and when throughput demands.