Last year, the procurement and supply chain management profession was challenged like never before. Despite facing numerous upheavals inflicted by supply chain disruptions in the last decade, most companies still found themselves unprepared for COVID-19. When the outbreak began in China, the disruptions were significant and far reaching, but 70% of organizations did not have a clear sense of what parts of their supplier network were affected. Instead, they were still in a “data collection and assessment” mode, manually trying to identify which of their suppliers had a site in the specific locked-down regions of China. The effort was exponentially complicated as countries around the world went into various stages of lockdowns and restrictions and supply chain experts spent several months reacting and responding.
In contrast, companies that invested in supply chain risk management tools, particularly mapping their supplier networks, had a different experience. They were able to conduct what-if analyses for different regions as the first few cases emerged and were able to work with suppliers in these regions preemptively to protect supply lines. These success stories demonstrate why supply chain mapping needs to be a foundational element of any risk management strategy.
Supply chain blind spots
Historically, the structure of a company’s supply chain has been largely driven by the imperative to reduce labor costs and improve efficiency. But in prioritizing cost and efficiency, companies have allowed weaknesses and vulnerabilities to emerge in times of unexpected events. The 2011 earthquake, tsunami, and subsequent nuclear disaster in Fukushima, Japan is an example: When disaster struck, most multinational companies in the semiconductor, information technology, manufacturing, and automotive industries had little visibility into the origin of the parts and materials that their tier-one suppliers depended on. Many of the tier-one suppliers had suppliers located in Fukushima, leaving companies scrambling. Flooding in Thailand later that year created the same disruption: Second and third-tier suppliers—unknown to manufacturers—were unable to deliver necessary materials. Subsequently, disruption in the availability of inexpensive parts ended up causing billions of dollars in lost revenue.
Still, only a minority of companies used Fukushima and the Thailand floods as a wake-up call to gain visibility into their supply chain; a critical mistake when COVID struck. Those that set up comprehensive, multi-tier supplier mapping programs came into 2020 more prepared: By having visibility into their supplier networks, companies such as GM, Cisco, IBM, and Amgen were able to quickly ascertain what parts and materials originated in Wuhan and Hubei and fast-track their responses. Those that didn’t had to act based on what an August 2020 report from McKinsey Global Institute (MGI) described as “only a murky view beyond their tier-one and perhaps some large tier-two suppliers.”
COVID: The ultimate wake-up call
It seems that COVID-19 has done what earlier disasters should have accomplished: It caused a widespread awakening to the vulnerabilities baked into our lean, cost-optimized supply chains. It has brought a greater focus on the need for building supply chain resilience capabilities. Through the pandemic, our profession has been brought to the forefront of urgent debate and discussion. It’s up to us to advocate for the supply chain of the future; a truly resilient one. A first step to get there is to build an accurate, detailed, multi-tiered supply chain map.
As the pandemic ramped up, companies that had mapped their supply networks down to the second-and third-tier levels could quickly see a complete picture of how the evolving crisis would affect their supply chains in the weeks or months to come. This identification of specific areas of failure helped companies take action before the disruption hit. COVID-19 highlighted that mapping is essential for building resilient supply chains for the future. As the MGI report authors emphasize, “Creating a comprehensive view of the supply chain through detailed sub tier mapping is a critical step to identifying hidden relationships that invite vulnerability.”
Without an accurate and constantly updated map of one’s supply chain, strategies that may at first look favorable for increasing supply chain resilience could come with unnecessary cost increases and/or fail to deliver the sought-for resiliency. Let’s look at one resilience strategy we were hearing a lot about in the second half of 2020: decoupling from dependency on China.
The term “reshoring” has been spiking in Google search terms and a third of companies have moved or plan to move their supply chains out of China by 2023. The drivers for this move were building long before the pandemic; they include rising labor costs, increasing tariffs, human rights issues, and the uncertainty over China’s relations with the West. The disruptions in China-based supply chains—especially for medical supplies and personal protective equipment (PPE)—that arose with the coronavirus outbreak have added urgency to this trend.
But without a thorough supply chain map, it may be impossible to shift away from dependency on China. As reported by the Wall Street Journal, apparel manufacturers that moved from China to Bangladesh still found their factories disrupted in early 2020 because they were still dependent on Chinese engineers and supervisors, as well as textiles, zippers, fasteners and other components. In similar fashion, manufacturers in industries from automotive to telecom, “rely on China’s factories for many intermediate goods, from electrical wiring for cars made in Europe to electronic components for mobile phones made in Brazil,” according to the article.
On the other side of the coin, the visibility that mapping provides could allow a company to decouple from China without switching suppliers. Resilinc’s database of close to half a million suppliers reveals that about 30 percent of Chinese suppliers have manufacturing sites outside of China. So, a customer wanting to source from countries other than China could conceivably do so without the cost and time of qualifying a new supplier.
Why doesn’t every company map its supply chain?
The simple answer is money and time. While historically it’s been costly for companies to develop and maintain an accurate map of their supply chain, today, with the right partners, the process can be much more streamlined and efficient. Rapidly evolving technology, cloud adoption, and enterprise networks have made mapping cost effective, scalable, and rapidly achievable. What’s more, the new generation of software companies providing mapping capabilities go far beyond what could be accomplished with emails, phone calls, and spreadsheets.
Let’s discuss some of the options as not all mapping is created equal.
There are a few types of mapping available; all provide different levels of value depending on a company’s needs. The simplest method involves mapping based on publicly available data including news and other information disclosed by large, direct suppliers about their production and logistics sites.
With this research, a manufacturer that is sourcing from large suppliers, such as 3M or Amphenol, can map the countries and regions where those suppliers’ operations are located. Then, when an event such as an earthquake, hurricane, or COVID-related government edict happens, the company has visibility into potential delays due to disruptions or closures in that region. While this method has the advantage of not requiring any input from suppliers, it also doesn’t allow for much transparency beyond the first supplier tier and may generate irrelevant data—noise—that must be filtered out to find the actionable data. This is because larger suppliers operate across many countries and not all sites may be relevant to a specific manufacturer.
To cut through the noise and increase visibility, companies should engage with suppliers to provide increasing levels of data. This data map can be achieved by starting with the locations of the suppliers’ own production and logistics sites and culminating with a comprehensive map detailing the linkages between tier-one, tier-two, and tier-three suppliers. The goal is to be able to trace individual parts to the exact site where they’re manufactured.
This ultimate level of “part-site” mapping adds the most value because it enables manufacturers and companies to know exactly what parts or materials may be delayed by an event affecting a specific site. The map should also include information about which activities a primary site performs, the alternate sites the supplier has that could perform the same activity, and how long it would take the supplier to begin shipping from the alternate site.
One of Resilinc’s global biotech customers leveraged part-site mapping to avoid supply disruptions after Hurricane Maria devastated Puerto Rico in September 2017. Before Maria made landfall, the firm was able to identify two Puerto Rican sites that supplied 25 to 30 items to its North American manufacturing operations. Assuming these sites would be compromised , the company made several million dollars’ worth of forward purchases from alternative suppliers that averted what would have been costly delays in manufacturing.
By contrast, Hurricane Maria left similar companies floundering for weeks trying to analyze which suppliers and materials would be impacted; many subsequently faced allocations and paid large premiums to secure constrained inventory. In the aftermath of Maria, hospitals also struggled for many months to obtain adequate supplies of IV bags.
Whatever technology platform a company uses to map its supply chain, a core best practice is to prioritize mapping those parts and materials that impact high-revenue products. Take this example: a company with $5 billion in revenue discovers that it has a single second-tier supplier for a low-cost connector that goes into its highest-revenue products. Without a mapping system that prioritizes revenue, the company would probably not pay much attention to that vendor because of the relatively low annual spend associated with it. But in reality, this sole-source vulnerability could derail production of a product that brings in hundreds of millions of dollars annually. In this case, it pays to spend several hundred thousand dollars to qualify an additional supplier.
The road to a resilient supply chain
Even after the initial shutdowns, we continued to see periodic COVID-related disruptions: such as renewed or extended lockdowns in Australia, the United Kingdom, and Kazakhstan and labor actions at shipping and airline companies over health-related concerns. In some Asian countries, government policies to contain the virus have been so stringent that a small uptick in case numbers triggers new quarantine orders. All of this had a subsequent impact on supply chain.
Even amidst the pandemic, the usual types of disruptions continue. This past July, a fire at a Nittobo plant in Sakurashimo, Fukushima, Japan, disrupted supplies of fiberglass to ABF substrate producers. Nittobo was a sole-source supplier for certain types of fiberglass fabrics; this in turn affected these producers’ customers who manufacture high-end servers, networking chips, and CPUs.
This is why mapping is so important. Whether contending with fires at one essential producer of high-performance raw materials or a pandemic that affects most of the world, supply chain mapping provides a foundational knowledge base and core asset that can be leveraged to build strong programs such as quality, compliance, sustainability, and supplier corporate social responsibility, to name just a few. This data allows companies to identify and anticipate vulnerabilities in their supply chain. It unlocks predictive analytics capabilities and enables them to act proactively. It allows them to respond to disruptions faster and more economically. It allows them to go from reactive to resilient. The journey to a diversified, supply chain risk management strategy begins with mapping.