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Risk Preparation Depends on Supply Chain Resiliency

Risk Preparation Depends on Supply Chain Resiliency

Sept. 22, 2023
Taking advantage of data and digitalization can help create contingency plans.

Barely owned for a year and already a pile of ashes -- 230,000 square feet of finished-goods warehouse space for custom fabrication company Morgan Li is decimated by a massive fire.

“A good portion of that was stuff we brought in from China for one of our biggest clients,” says Morgan Li CEO Andy Rosenband.

In a matter of hours, the Chicago Heights, Illinois-based manufacturer of fixtures, furniture and graphics lost one of its five domestic facilities. However, just seven months after this immense blow, the third-generation family business is on a path of rebuilding and growth, including new projects and clients.

How did the company do it? A few key supply chain strategies.

“In our business, there are people who only import and who only do domestic. We have bridged the gap. We have full redundancy; everything we can do in China, we can do here, and vice versa. That was even before COVID. That was just a strategic plan that we put in place,” Rosenband says.

Morgan Li’s blended onshore/offshore manufacturing process allowed it to preemptively prepare for changing market conditions by leaning on a flexible supply chain.

By combining domestic and international manufacturing, “there are cost efficiencies in terms of shipping, bringing in parts raw, that we then marry up with parts we’re making here,” he says. “Then we can use our in-house capabilities, our manufacturing, our welding … and ship that out to our client at much more competitive costs. So again, it’s just offering our clients a menu of fabricating options. It really has helped us gain market share and increase customer base.”

The stuff that burned up in the fire? Those items became the No. 1 priority for Morgan Li’s U.S. facilities where workers moved fast to beat shipping deadlines.

"Whatever it cost, we got it done to make sure that our clients weren’t impacted,” the CEO says.

It wasn’t cheap or easy, but the company survived the crisis without losing critical customers.

“Obviously, losing 230,000 square feet overnight is a really big challenge. And we’re still sort of managing that today, but we’re savvy … we’ve been incredibly responsive to the needs of the business,” he says.

Not only has the company’s recovery been good for business, but it empowered Morgan Li to take care of its 67 warehouse employees.

“We were able to disperse them into our other facilities,” all located within an eight-mile radius, Rosenband says.

A smoking hole where a warehouse once stood is an extreme example of supply chain disasters, but Morgan Li’s ability to overcome the disaster is a great example of preparation and execution. Two experts shared long- and short-term tips that businesses can also take to be ready for the worst.

Do Your Homework

Morgan Li’s actions pre- and post-fire prevented the disruption from becoming a complete catastrophe. What lessons can other companies learn from this event about creating supply chain resiliency to avoid or mitigate potential challenges?

According to Paul Stepanek, president of Complete Manufacturing and Distribution, no one-size-fits-all solution works for all companies, but the ones that do their homework upfront to build strong foundations tend to stay a step ahead.

“Let’s just say you had an event that forced you to rethink your supply chain. If you’re waiting until that event happens … that whole process could be six to 12 months,” he says. If you are proactive instead of reactive, “you’re six months to a year ahead of where you would be if you were waiting on your heels.”

To create resilient supply chain contingency plans, companies should decide which ideas fit best for their industry.

Having diversified suppliers gives you more backup options if you have a fail point, Stepanek says. “Once you get into that space of having enough volume, having more than one location, especially for components that are either long lead time or that might be more critical to the overall product, it’s important to have a diverse supply chain, and it could be within one country, or it could be multiple countries.”

In addition, having good relationships with these suppliers can offer more security to your supply chain.

For example, if a supplier suddenly becomes inundated, it may not have the capacity to make your parts, Stepanek says. “But if you’re already a part of them, and you’ve been working with them for months or years … you pay on time, and you work through problems together, that’s a very powerful thing over the long term.”

Location can also be a big factor in creating a robust supply chain.

One point to consider for manufacturers is localizing on the component level. “So, in China as an example, if you’re manufacturing an assembled product and you have a bill of materials of hundreds of parts, you don’t try to localize in that new country, say Vietnam, you don’t try to localize hundreds of different manufacturing process parts all in one go, you go after big bulky parts that aren’t very shippable,” he says.

Also, Stepanek says manufacturing closer to the market is a viable option for some brand owners. “As long as those places where you’re manufacturing are efficient, not only from a manufacturing perspective, but also getting the goods then distributing the products to the end user.”

Although strategies will differ from company to company, there is one constant theme: Be proactive. Building out a supply chain is a process that takes time, so companies that are practical in calculating possible risks will have established building blocks to react properly.

“Some companies have taken the approach of ‘When it happens, we’ll be in the same boat with everybody else, so we’ll just wait until we have to,’” Stepanek says. “And there are other companies that are doing it very proactively … ‘We’re going to have options that we can play off of each other. And we can toggle volumes between different suppliers. But we’re going to have them both running production simultaneously. So that if either one of them is not able to supply, we always have that backup in place.’”

“The companies that do that work create a lot more resiliency … and the companies that don’t, their hair is on fire, and they’re running from firefighting to firefighting,” he says.

Although the riskiness of not adequately preparing for disruptions can vary depending on the product you produce, Stepanek says erosion of the brand can occur if resilience is not built in.

“The kiss of death for a brand owner is they have the demand, but they’re not able to meet the demand. And today is a world where the consumer is so fickle, that ‘If I can’t buy it here in the next five minutes, I’m going to go buy it there.’”

End-to-End Awareness

“Managing day-to-day as well as looking out for things that could happen five or 10 years from now, that’s key,” says Adhish Luitel, senior analyst that leads the Supply Chain Management & Logistics Research practice at ABI Research. A company supply chain “needs to evolve over time, improve over time to meet ever changing conditions” to minimize disruptions due to disruptive events.

Luitel says that a reliable disaster recovery plan is important for any business with a dedicated supply chain. “Without that, you can fall under any type of risk, like data loss, reduced productivity, out of budget expenses, reputational damage, that just impacts your bottom line.”

Luitel emphasizes that while developing these business continuity plans, companies should not only look at macro trends but also vulnerabilities that are within their control. In this way, they are able to take actionable steps to prepare for the unknown.

“[Increase] supply chain visibility,” he says. “What I mean by that is making sure you’re tracking your containers, you’re tracking your pallets, you’re tracking your crates. Now, technology has reached to the level where you can even attach IoT solutions onto individual items … Does that make sense for every company? Probably not. But reaching that level of granular visibility is very key.”

Luitel says COVID made some things clear about inventory levels. “Making sure they’re avoiding running out of stock, having a safety stock,” and fostering flexible production are aspects that have been highlighted by the pandemic, he says.

Taking advantage of data and digitalization will also help in creating contingency plans, he says. “Forecasting demand, for example, promoting agility, trying to be more flexible during unexpected events by looking at the best-case scenarios, looking at the worst-case scenarios, really taking scenario planning to the next level using data analytics.”

Building off this idea, Luitel suggests conducting a supply chain vulnerability audit. “Looking at all the risks that you might potentially come across and developing this plan to mitigate the impact of any kind of disruption speaks to scenario planning as well, just to identify all the potential risks.”

On the supplier side, Luitel echoes Stepanek, noting that augmenting procurement and sourcing, identifying backup suppliers and improving supplier relations are recommended strategies.

Luitel’s strategies on optimizing your supply chain to create contingency plans are:

• Increase supply chain visibility

• Increase inventory levels

• Create flexible production and automation

• Diversify suppliers

• Use data analytics

• Conduct supply chain audit

• Improve supplier relations

• Keep an eye on market trends.

Despite the emphasized importance of being cautious, proper preparation does not always lead to immediate value.

“With risk mitigation, you can’t see the benefits right away. And a lot of companies are very demanding of their investments … and unless they see a very clear ROI from the get-go, a lot of companies don’t even think about investing in those,” Luitel says. “I think it’s a matter of just looking at this from a different lens … having that level of cushion where companies can work their way around different kinds of disruptions that might occur, that’s super important.”

Despite this, Luitel has seen a rise in the adoption of risk management platforms, and he believes supply chain strategies will continue to be a growing focal point for companies.

“The last decade really was a redefining era for global supply chain in terms of how we’re looking at nearshoring, how we’re looking at manufacturing, how we’re looking at end-to-end visibility … the acceleration of ecommerce, for example, click and collect, that’s a trend that’s really growing, ‘Amazonification’ of things, so to speak,” he says. “That has really put a priority on supply chain resilience, and risk mitigation for supply chain.”

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