Supply Chains After The COVID Pandemic: Resilience More Important Than Cost

The supply chain vulnerability discussion can be broadened to include a company’s own production. Could a vital machine go down, or a couple of critical workers give each other a virus, or the entire plant flood?

Carrying high levels of inventory to limit supply chain problems flies in the face of decades of advice for businesses to keep inventory lean. That advice was developed when interest rates were high, so holding inventory was expensive. It still make sense for bananas and fashion items that may be out of style next month. For many products, however, obsolescence is slow. If theft is also a low risk, as it is for many industrial products, then inventory is pretty cheap. And its value is higher the more fragile the supply chain.

Using multiple vendors, across different regions, is another approach to consider. Concentrating orders among a small number of suppliers typically lowers cost, but minimizing cost is not as important as ensuring availability of supplies.

Another consideration should be proximity of the supplier. More things can go wrong with materials coming from across the ocean than from down the street. However, the location of the vendor may not be the crucial issue. The wholesaler down the street may be importing products from a factory across the ocean. Conversations with vendors should clarify all of the steps necessary for the vendor to deliver on time. Having the conversation adds emphasis that the topic as critical to earning repeat business.

Protecting a company from supply chain failures will be a frustrating exercise. There are seldom perfect, cheap solutions. Yet executives who want their company to remain in business in the years to come must think through their supply chain risk, develop continency plans and incorporate this thinking into their entire operations system.

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