How to Build Supply Chain Resilience

How well do you really know your supply chain? If the last few years have taught us anything, it's that disruptions can come from anywhere, and most businesses are blindsided because they don't know where their vulnerabilities lie. Whether it's missing components, quality issues, or geopolitical upheaval, the weakest link in your supply chain can cause the whole system to crumble. So, how prepared are you to handle the next crisis?

Supply chain resilience has become a critical priority for procurement professionals. With disruptions like pandemics, geopolitical tensions, and natural disasters creating vulnerabilities, businesses must understand the hidden risks within their supply chains and plan accordingly. In a recent discussion on The Never-Ending Climb, Rob Handfield, a leading expert in supply chain management, offers valuable insights into how companies can protect themselves from catastrophic supply chain failures. Below are practical takeaways that can help procurement professionals build a more resilient supply chain.

Know Your Suppliers – All of Them

One of the most significant vulnerabilities in supply chains is a lack of visibility beyond tier-one suppliers. Many companies only know who their immediate suppliers are but have no insight into their tier-two or even tier-three suppliers. This blind spot can create major issues when an unforeseen event disrupts the lower tiers. The COVID-19 pandemic revealed how critical this is when businesses couldn’t access essential items like personal protective equipment (PPE) because suppliers, unknown to them, were based in shutdown regions.

Rob Handfield encourages you to map your entire supply chain, including all sub-tier suppliers, and identify who produces your critical materials. Having a clear understanding of who is part of your supply chain enables you to better predict and manage risks.

Identify Your “Kill Shot” Suppliers

A “kill shot” supplier is one whose failure could bring your entire operation to a halt. These are suppliers that, if disrupted, would prevent you from delivering products or services. For example, the semiconductor shortage has crippled industries, leaving companies like automakers unable to complete their products due to a lack of critical components.

A valuable practice is to conduct a “kill shot analysis” to pinpoint single-source suppliers or components that are critical to your production. Once identified, develop contingency plans, such as identifying alternative suppliers or sourcing locally, to mitigate this risk.

Stress Test Your Supply Chain

Understanding potential risks is one thing—being prepared for them is another. A key recommendation from Rob Handfield is to perform regular stress tests on your supply chain. These tests simulate various scenarios—geopolitical conflicts, natural disasters, or supplier bankruptcies—and assess how well your supply chain can respond. Build scenarios based on historical events and potential threats, and test your supply chain’s ability to handle them. For example, a stress test could simulate a natural disaster in a supplier's region and evaluate the speed and effectiveness of your backup plans.

Geography Matters: Evaluate Your Suppliers’ Locations

Supplier location plays a significant role in supply chain resilience. Some areas of the world are more vulnerable to disruption due to geopolitical instability, natural disasters, or logistical challenges. A prime example is the global reliance on China and Taiwan for semiconductors and other critical components, which has made companies vulnerable to political tensions or natural disasters in these regions.

Assess the geographic location of your suppliers and their exposure to risks like earthquakes, typhoons, or political unrest. Ensure that you have backup suppliers in safer, more stable regions to reduce the likelihood of significant disruptions.

Consider Local Sourcing to Reduce Risk

The just-in-time (JIT) model, where inventory is minimized and components arrive exactly when needed, has been effective for companies with local suppliers. For example, Honda’s supply chain, which relies heavily on U.S.-based suppliers, managed well during global disruptions because most components were sourced locally. However, global JIT systems are vulnerable to delays and shortages, as seen during the pandemic.

Where possible, consider shifting to local suppliers, especially for critical components. While this might increase costs slightly, it reduces risks associated with global shipping delays or international supply chain disruptions.

Monitor Global Supply Chain Developments

As Rob explains, global supply chains are more interdependent than ever, and China plays a key role in many aspects of logistics, from manufacturing marine containers to controlling major ports. Understanding this geopolitical dynamic is crucial, as China’s dominance could severely impact global trade if tensions rise or policies shift.

Be sure to keep track of geopolitical changes, especially in regions where your key suppliers operate. Be proactive in identifying alternatives to Chinese suppliers, particularly for critical goods like electronics or pharmaceuticals.

Balance Cost with Resilience

Many companies choose suppliers based solely on cost, often through a lowest-bidder process. While this might result in short-term savings, it can expose the supply chain to significant risks. Evaluating suppliers now requires a more comprehensive approach that considers reliability, flexibility, and geographic risk in addition to price.

Make sure you reassess your supplier evaluation criteria to ensure resilience is part of the decision-making process. Factors like dual-sourcing, inventory buffers, and local suppliers should be considered alongside cost to build a robust, resilient supply chain.

Strengthen Your Supply Chain With Best Practices

Supply chain resilience isn’t just about reacting to disruptions; it’s about anticipating them and building a system that can withstand them. Procurement professionals must take proactive steps—like mapping their supply chain, stress-testing it, and considering local sourcing options—to avoid becoming vulnerable to unforeseen events. By implementing these strategies, companies can ensure that their supply chains remain resilient in the face of an increasingly unpredictable global landscape.

Click here to watch the entire interview with Rob Handfield.