New BCG Report: Designing Resilience into Global Supply Chains

A new report from Boston Consulting Group (BCG) observes how companies can learn from the pandemic and design resilient global supply chains.

BCG’s new report outlines how companies must build more resilience into their manufacturing and supply networks—even if that resilience leads to extra costs.

“We don’t know what the next ‘black swan’ event will be or when it will occur, but now is the time to make strategic supply chain improvements that can help reduce the impact of future disruptions, says Megan DeFauw, Managing Director and Partner at BCG in an interview.

Furthermore, says DeFauw, supply chain managers need to understand the current resilience of their supply chains in an end-to-end manner, set targets for future resilience in their supply chain, and then develop a detailed plan to achieve those goals.

“Digital tools can be real gamechangers when it comes to modeling network performance in different stress scenarios, and rapidly evaluating potential network changes that would increase resilience. Companies should consider a wide range of levers to increase resilience – from investments in E2E supply chain visibility, to inventory re-optimization, to manufacturing footprint changes,” she says. “ We feel pretty strongly that the value from this increased resilience far outweighs the small cost benefits companies might get when they try squeeze out a few additional cents out of their global supply chains.”

Analysts say that there are many ways companies can improve resilience in each dimension of the value chain.

In terms of sourcing, for example, they can reduce the risk of geographical overconcentration of their supply base by reallocating procurement within their existing global supplier networks in order to be closer to end markets. They can also convince vendors to shift all or some of their production to alternative locations.

Manufacturing networks can be made more resilient by expanding capabilities at existing factories and adopting a contingency strategy that prequalifies other factories within their networks and backup contract manufacturers that can quickly take on work if some facilities experience disruptions. To improve delivery resilience, companies can reoptimize inventories and stock goods closer to end markets.

Even for companies with extensive experience in global manufacturing and sourcing, the COVID-19 crisis has created a need to restructure supply chains. BCS suggests companies take the following steps to assess and adjust their supply chains:

1. Align design principles with the new reality. Begin by assessing whether your supply chain is adequate given the new economic and geopolitical realities. Identify exposure to high-level risks and the tradeoffs involved in optimizing the supply chain.
2. Segment the portfolio by supply chain risk and understand performance drivers. Define key segments within your business portfolio and assess supply chain risks on the basis of many factors, including product, geographical footprint, technology, and exposure to potential policy change. Gauge the current performance of your supplier and manufacturing networks on dimensions such as cost and service levels.
3. Identify levers and options at the segment level. Evaluate all applicable levers for supply chain optimization according to the profile of each segment and where in the supply chain the largest risks lie. Determine the level of effort required for each action and the impact it is likely to have on supply chain capabilities.
4. Evaluate supply chain design options for each segment. For each potential lever, analyze the tradeoffs betweengeopolitical risk and factors such as production costs, logistics, duties, market access, and resilience. Then select an appropriate approach to supply chain optimization. Identify key KPIs for resilience: a company could, for example, decide it wants at least 30% of key products or inputs to come from three or more qualified manufacturing sites in different geographic areas and would like to keep its capacity utilization under 85%.
5. Pressure test design choices across the company. Aggregate contemplated changes at the segment level and evaluate the resulting internal and external network at a company level. Then analyze what would happen to the redesigned supply chain under a set of scenarios—such as an escalating US-China trade war, a financial crisis that bankrupts key suppliers, or another pandemic—that could lead to business disruptions.
6. Put the network redesign in place and monitor performance. Draw up a plan for implementing the new supply chain design and a system for monitoring the performance of the enterprise-to-enterprise network as the macroeconomic and geopolitical environment evolves.

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