Share it with your network!
Help your friends to new knowledge
How to make your supply chain resilient in just five steps
Ever changing conflicts, as well as trade barriers and stricter regulatory requirements mean that international supply chains need to be fundamentally realigned. But how can we reliably protect supply chains from future shock waves?
Long delivery times and empty shelves: supply chains have been under enormous pressure since the outbreak of the COVID-19 pandemic and the war in Ukraine. Companies and entire economic areas have suffered serious competitive disadvantages as a result. According to a recent Accenture survey, the economic damage resulting from supply chains which are broken and irreparable in the mid-term is likely to reach EUR 920 billion by the end of 2023 in the eurozone alone. Resolving the supply chain issue is therefore among the most urgent tasks of economic policy-makers and decision-makers.
Focus shifting from cost optimisation to resilience
The last few years in particular have shown that supply chain models with a tendency towards single-sourcing and minimal inventories are highly vulnerable during times of crisis. This concept simply no longer works. Firstly, it lacks the necessary agility and flexibility to quickly resolve disruptions. Secondly, the cost benefits of the past have today long since become a cost trap.
Alongside cost efficiency, other factors, such as a resilient supply chain structure, also need to be incorporated in supplier ratings. But what else should be considered when looking to reduce risk exposure in supply chains? What other adjustments are required to ensure that a supply chain remains resilient at reasonable cost, even in the face of disruptive conditions?
The following five recommendations will go a long way towards achieving supply chain resilience.
1. Implement standardised risk management
To ensure that supply chains are adequately stabilised during crisis situations, companies must be capable of proactively identifying risks. This is the only way to either completely avoid disruptions or adequately limit them through the use of suitable measures and thereby ensure business continuity.
Standardised risk management is based on consistent best practices that enable companies to determine potential risks and vulnerabilities in every link of the supply chain, for example relating to natural disasters, geopolitical events or possible supplier insolvency. The key here is: the greater the data transparency, the more accurately the likelihood of individual risks and their potential impact on the supply chain can be determined. At the same time, companies receive valuable information in terms of which risks and which suppliers require the most attention.
A detailed plan of action can then be drafted for each identified risk based on the findings. The emergency plan includes alternative supply sources, contingency plans, and methods for faster communication with both suppliers and customers.
2. Break up data silos and create data transparency
Minimising risk requires complete data transparency, including a 360-degree perspective of suppliers. Silos therefore need to be merged on a central platform and all data cleaned up here. This results in a high-grade pool of valid data for reliable risk analyses, pattern recognition, as well as planning of strategic buffer capacities, multi-sourcing options and emergency actions that help companies react to disruptions both quickly and securely.
Another way to break up data silos is to use a unique identifier that can work across a business such as the D-U-N-S® number from Dun & Bradstreet. This enables companies to match and clean up the data for 360-degree view of each supplier. This data can be made available through a centralized platform providing access to anybody across the business that needs it.
3. Establish a strategic inventory buffer
Capacity and supply buffers cost money. As such, they remain a sensitive subject, even during times of crisis. After all, achieving supply reliability by expanding inventories conflicts with any company’s desire for economic efficiency. This leads to a kind of yo-yo effect. As soon as supply bottlenecks emerge, inventory reserves are increased. When supply is then once again secured, lean inventory management is immediately re-established.
Although a return to classic warehousing should not be anticipated when long-term or evolving crises strike, establishing strategic reserves can at least dampen bottlenecks effectively in those areas of the supply chain that are deemed critical to business.
However, checks need to be performed on a case-by-case basis to determine which inventory increases make strategic sense, when and to what extent. Analyses should also be performed to establish where short-term supply difficulties can be resolved more efficiently through use of logistics partners.
To secure protection from interruptions, it’s also advisable to minimise regional risks through geographical diversification and, wherever possible, to extend the respective supplier base to include nearshoring options. Although this makes the supply chain more complex and potentially also more expensive, the pay-off is that both reliability and the logistical proximity of the product to the customer are increased.
4. Make the switch from single-sourcing to multi-sourcing
Supply disruptions in one region can very quickly cripple the entire network. However, the risk of multiple suppliers in different locations being unable to deliver at the same time is extremely unlikely.
Following outbreak of the COVID-19 pandemic, many companies chose to diversify their procurement strategy and put backup plans in place to weather the crisis. These can involve identifying additional suppliers or cooperating with a partner that has production operations in various regions and can supply from each of these, as and when needed.
To make the switch from single-sourcing to multi-sourcing, supply chain managers require extensive and detailed knowledge of their supplier network, for example by performing supplier benchmarking based on location or ESG factors. Cost-benefit analyses should not only consider purchase prices, but also lost sales due to unanticipated disruptions.
5. Establish and maintain trusting partnerships
A state of resilience can only be achieved by everyone in the supply chain process working together and in state of mutual trust and transparency.
Companies then gain comprehensive insight into the closely networked processes of suppliers and partners, for example in the areas of procurement, logistics or personnel deployment. Low inventories or supply bottlenecks can be detected faster, enabling companies and suppliers to draw up solutions together before delays or shortages of raw materials even occur.
As a general rule, any change to the supply chain requires case-by-case analysis that ultimately weighs up any potential benefits in terms of supply capability and the security of the supply chain against the costs involved. However, even the most resilient supply chain doesn’t guarantee absolute supply reliability. If a problem does occur, damage limitation can still help – in the form of up-to-date inventory and order information that offers customers added value and reassures them, even in the event of further delays, that all necessary measures to rectify the situation have been introduced.
DESIGN NOTE:BACK PAGE
How data from Dun & Bradstreet can support you in making your supply chain more resilient
Uniquely identify your suppliers
Companies across the globe can be uniquely identified via the D-U-N-S® number from Dun & Bradstreet. This can be used to discover information on corporate affiliations of business partners, ownership structures, the sector in general and much more.
Having a unique identifier helps you visualise the organisational structure of your suppliers and the risks they pose, while maintaining an overview of how companies within corporate groups interact with one another. You can identify acting individuals (CEOs, Executive Board members, Ultimate Beneficial Owners, Directors, etc.) and research information on revenue or the number of employees.
This information forms the basis for an analysis of your suppliers.
Adopt a risk-based approach to classifying your portfolio
Which business partners in your portfolio pose the greatest risk for your supply chain? The data provided by Dun & Bradstreet makes it easy for you to find out.. You can then assign your business partners the colours red (high risk), yellow (medium risk) or green (low risk) based on information such as sector classifications or corporate affiliations. Here, companies that pose a particularly high risk to your portfolio should be checked on a regular basis.
In a set of rules tailored specifically to your company, you can precisely specify your requirements for business partners to make your supply chain resilient. Alongside your own internal criteria, such as your knowledge and information relating to the suppliers, you should always also include external data in your risk analysis. We have put together the following criteria as an example for you:
- Which country is the supplier based in? Example: Sweden - low risk
- Which industry/sector does the supplier operate in? Example: textiles trade - high risk
- What is the location of the parent company? Example: Russia - high risk
- ESG ranking > 3 - high risk Example: ESG = 4 - high risk
- Are the individuals that ultimately benefit from the proceeds of the company likely to be sanctioned, politically exposed or on watch lists?’ Example: Politically exposed – high risk
Examining the overall picture, this simplified set of rules indicates that we are dealing with a supplier with a high risk in terms of human rights violations.
Secure greater sustainability in your supply chain with ESG data
The ESG Ranking from Dun & Bradstreet could determine whether a company is potentially facing financial losses due to negative performance in the ESG dimensions. For example, if a company’s carbon footprint is significantly worse than the sector average, customers may well opt for companies with better carbon footprint in future.
ESG stands for Environmental, Social and Governance. Dun & Bradstreet has identified over 31 topics within these three dimensions and both collected and rated information on companies across the globe. These for example include energy and water management, climate risks, observance of human rights, social commitment, business ethics and many more.
A scale of 1 to 5 is used to measure the risk, with 1 being the lowest risk and 5 the highest. If a company has a supplier with an ESG ranking of 5, it can be concluded that the risk is very high.
The ranking supports you in identifying business partners with a particularly high risk in their supply chain.
Make your suppliers transparent with compliance screening
In the compliance screening approach from Dun & Bradstreet, companies across the globe are examined and any negative reporting or associations are investigated, including sanctions, money laundering, fraud, human trafficking or terrorist financing. These checks represent an important tool in determining whether one of your suppliers is, for example, potentially involved in financial crime, sanctioned or other illegal actions.
Once you have identified a supplier as “high risk”, you should record various information on that supplier, including the following:
∙ Name
∙ Contact person (name and e-mail address)
∙ Parent company (where applicable)
∙ Type of product/service
For direct suppliers: Order volume in the last fiscal year
∙ Business premises or production site(s)
∙ Number of employees
∙ Presence of an employee representative body
Identify alternative suppliers
Dun & Bradstreet supports companies in understanding the risk levels of suppliers and finding alternative suppliers that can meet specific requirements. You can find information on over 500 million companies in the Dun & Bradstreet database.
How to access the data from Dun & Bradstreet
- You can use the Direct+ interface from Dun & Bradstreet to call up the data automatically on your own IT system (ERP, CRM, etc.) via API. Based on a set of rules, comprising IF-THEN functions, it’s possible to reach automated decisions for or against a supplier. In cases that cannot be resolved on an automated basis, the information is forwarded to an employee that then examines the business partner closely and reaches a decision. This enables you to regularly monitor risks and increase the resilience of your supply chain.
- With D&B Data Blocks, Dun & Bradstreet helps you use only the data that’s relevant for your company. The data blocks are categorised by topic. This is a modern, cross-sector method of providing data in a straightforward, standardised and flexible way. You can then, for example, specify on an individual basis for your own specific requirements that you only wish to include data on the sector as the basis of your assessment when examining new suppliers. This means that you only pay for the data that you actually need for your assessment.
- The web-based solution D&B Risk Analytics has an option for calling up ESG risk data very easily as a report. This tool also provides other compliance-relevant data and services (UBO, screening, etc.). It can also be used for comprehensive portfolio assessments and individual analyses.
Would you like to know more?
We’d be delighted to advise you in a personal meeting.
You can contact us by sending a mail to:
hello@dnb.com
www.dnb.co.uk