What makes a supply chain resilient and how can you develop one to withstand unexpected events? Here, Beyond Corporate’s Georgia Hargreaves looks at why having a strong supply chain is important for your business and offers her top tips for developing supply chain resilience.
Supply chain resilience is essentially the ability of a supply chain to recover from unexpected events and minimise the impacts on costs, customers and revenue. It encapsulates the ability to withstand disruptions and, more importantly learn from them and assess the constant need to adapt over time.
Traditionally, supply chains sought to keep costs down and remain stable, now though, far more is required to achieve a successful and robust supply chain. Modern supply chains need to keep up with consumers, predict and prepare for any potential peaks and troughs.
Why is this important for my business?
Supply chain disruption is all too familiar in the post-pandemic world, with growing political tension, climate change and extreme weather conditions causing huge international disruptions. Such events place pressure on businesses in performance of contractual obligations and have the potential to break supply chains and send costs soring.
The increasing use of social media as an advertising platform adds to the uncertainty, traditionally companies would be able to prepare for increases in demand in line with planned advertisement and marketing campaigns. With platforms such as Instagram and TikTok, clips can gain overnight traction and unexpectantly place certain products in the spotlight. Flexibility within the supply chain is required to keep up with such trends. Covid-19 accelerated and magnified existing problems in the supply chain, highlighting the huge knock-on effects of labour shortages and depletion of inventory.
Disruptions can lead to price increases and delays in distribution – does your business have the contractual right to pass cost inflation on to customers? And would any prolonged delay result in a breach of contract?
Things to consider when developing a resilient supply chain:
- Contractual clauses can help to protect your business in the face of delays or price increases.
- Force Majeure clauses excuse a party from performance in certain events, the scope of this can vary, including a broad variety of events will aid in ensuring that your business is well protected.
- A price variation mechanism would assist in scenarios whereby contract performance becomes more expensive, in UK law if no such mechanism exists then there is no way to alter the contract price unless the parties both agree to do so.
- Termination rights and break clauses in contracts allow parties to walk away in certain circumstances, this would be useful for situations where the contract becomes unprofitable or unperformable due to delays and price increases.
- Diversification of supplier and supply locations, transportation, products, and customers. The use and reliance on a single supplier may lead to vulnerability. It is vital to collaborate across the entire supply chain, identifying any gaps and sourcing materials from multiple suppliers will assist in reducing dependency and minimise the impact of disruptions.
- Communication and transparency throughout your supply chain and with stakeholders through broader data sharing agreements. Tracking data and analytics in real-time will assist in anticipating potential disruptions and responding in a timely manner. Developing strong relationships will allow your business to more effective responses to disruptions.
- Adaptability, a supply chain that is suitable for yesterday’s economy may not be quite as suitable in a year or even a months’ time – continual assessment of how the supply chain responds to risk is essential to understand how it will deal with disruptions.
- Modern technology can assist in providing trend forecasts and anticipate potential risks. Although social media has increased the need for supply chain resilience, it can also be used as a tool to develop a more resilient supply chain, as it assists in improving communications, distribute information and track and trace assets.
- Manage demand of products, is there anything that can be done to manage increases in demand consider any potential alternatives or substitutes. Businesses should consider if it would be feasible to create stockpiles of goods which are at risk.
Supply chain resilience comes down to ensuring your business is prepared to deal with a variety of obstacles, maintain visibility and collaborate across the entire supply chain. More than purely defensive, supply chain resilience proactively enhances business’s ability to adapt to disruptions. Much of this can be managed through a variety of commercial and legal tools, including contracts, customer and supplier onboarding and pro-active contract management.
If you are uncertain about whether your existing contracts provide sufficient protection of your business, or require general commercial advice on this topic, please contact us at [email protected].
