The COVID-19 pandemic made us aware of how vulnerable our global supply chains are. But today, other factors such as war, trade conflicts, and climate change threaten our supply chains.
According to Professor Allan Larsen, who researches supply chain management and logistics at DTU Management, the increasing number of extreme weather events particularly impacts logistics. A significant portion of the world's goods are transported by container ships, and in the Panama Canal, extreme drought over the past few years has periodically resulted in water levels being so low that fewer ships could pass through.
"If it were an isolated incident, it would be relatively simple to handle, but because so many things are happening simultaneously and in many different places, you risk larger supply crises," says Allan Larsen.
Most small and medium-sized enterprises in Denmark rely on international cooperation and the ability to have goods delivered quickly and easily from around the world. So, they often have complex supply chains vulnerable to disruptions – also from conflicts seemingly far away.
“Our supply chains have become so globally anchored that when you go back in a specific branch of the chain, you quickly hit other geographies. So you risk unintentionally working not only with ‘friends’, but also your ‘enemies’, who may be subcontractors of some important component,” says Allan Larsen.
Here are Allan Larsen’s three tips for manufacturing companies to avoid supply chain problems:
Mapping
It is essential to have a detailed mapping of all your suppliers so you know where your deliveries come from – not just from direct suppliers, but also their sub-suppliers, as this can quickly impact your own supply chain.
"If you don't have that overview and you run into a problem in the supply chain, you might make a snap decision without knowing its consequences – either economically or in terms of delivery time," says Allan Larsen.
Digitalization
Many companies have not yet fully digitalized their supply chain processes. Especially in logistics, many processes still occur analogously. They are therefore not updated in real-time, which means you do not get an accurate picture of where your deliveries or finished products are if something goes wrong. When you digitalize all parts of your supply chain, you can much more easily prepare scenarios for what to do if a disruption occurs and what it means for the rest of the network.
"Digitalization creates transparency in the supply chain, which is a prerequisite for making usable risk assessments and backup plans," says Allan Larsen.
Resilience
Once the mapping has provided an overview, it is about identifying the potentially critical parts of the supply chain and building resilience.
Resilience can mean having two or more suppliers of particularly important goods instead of one or having different modes of transport. So, if there is a bottleneck in maritime traffic, you can get the goods by truck, freight train, or plane.
"This gives a completely different flexibility in your supply chain to choose an alternative mode of transport, but on the other hand, it can also become extremely expensive," says Allan Larsen.
