Anyone who tried to buy toilet paper last spring felt the effects of the havoc wreaked on domestic supply chains by the Covid-19 pandemic. And for the past year, organizations across nearly every industry have been working feverishly to address severe vulnerabilities across their supply chains.
It's a serious issue that's even drawing attention from the U.S. government: Last month, President Biden's administration signed a new executive order mandating a 100-day review of four critical domestic supply chains to prevent future product shortages.
Since supply chains weren't the hottest topic of dinner table conversation before Covid-19, this new spotlight on the topic raises several key questions for the American public and organizations alike. Why is protecting domestic supply chains so important? How do vulnerabilities impact everyday consumers? Which business models are most at risk? And what can be done about it?
The Impact of Failing to Secure Critical Supply Chains
The four supply chains under review in President Biden's executive order include computer chips, large capacity batteries, active pharmaceutical ingredients, and rare earth minerals, and the primary purpose of the review is to protect these supply chains against resource scarcity.
These supply chains in particular fuel the basic standard of living that we've all grown accustomed to today. Computer chips are no longer just used in PCs -- they now operate our smart devices, TVs, and even kitchen appliances. Pharmaceutical ingredients are critical to maintaining the health of our citizens. Large capacity batteries support our efforts towards renewable energy and the ability to build a more sustainable future. And rare earth minerals are found in everyday products including rechargeable batteries, mobile phones, magnets, fluorescent lighting, and much more.
Without proper action, these supply chains could come to a complete halt, these necessities would no longer be available, and the economy would suffer.
But before diving into the key steps to protect our supply chains from this risk, we first need to understand how the issue occurred. Resource scarcity stems from the fact that the vast majority of materials used to build products are finite resources, so every manufacturing organization is vulnerable to shortages. And these four specific supply chains under review are especially vulnerable because of widespread domestic under-investment, which has led to a reliance on competitive organizations in foreign markets.
This reliance puts thousands of organizations and millions of consumers in compromising positions, essentially at the mercy of suppliers they cannot control.
Steps to Protect Supply Chains Against Resource Scarcity
No matter how robust and diversified an organization's supply chain is, disruptions will continue to occur. The Covid-19 pandemic was a massive, unforeseen disruption. And while we can hope to not see another global pandemic in our future, we do have to be prepared for other unpredictable factors that can impact the supply chain, such as natural disasters or events like the recent snowstorm in Texas.
Here are a few steps organizations can take to eliminate the vulnerabilities across their supply chain:
- Adopt Multisourcing Strategies: Arguably the most important step is refraining from sourcing materials from just one supplier. This single-sourcing strategy is the epitome of putting all of your eggs in one basket--and if that supplier can't deliver the source materials because of a shortage, the sourcing organization and its customers will be out of luck. Sourcing materials from multiple suppliers across several regions (also known as multisourcing) helps ensure the flow of goods without delays.
- Examine Inventory: To further protect against resource scarcity, organizations should explore building excess inventory and examine whether insourcing of materials is a possibility.
- Standardize Parts: To reduce reliance on foreign manufacturers, organizations should aim to use standardized, widely available parts for the assembly of products.
- Consider Moving Closer to the Consumer: Manufacturers are increasingly shifting away from operating large factories in low-cost regions to utilizing smaller factories located closer to the end consumer. Partnering with manufacturers like these helps organizations become less vulnerable to disruptions like weather delays, and also brings the organization closer to the areas of highest demand.
- Conduct a Full Assessment: Organizations should execute a full assessment of their supply chain, including an audit of their various partners (such as suppliers and distributors), an evaluation of the processes in place for communication and collaboration with those partners, and a review of the technologies and systems supporting the supply chain's operations.
- Leverage Technology to Help: Finally, technologies exist today that help supply chain managers determine where they might have a resource vulnerability, and these technologies enable organizations to see issues before they occur so they can take steps to mitigate supply disruptions.
Resource Availability Builds Resiliency
While the Covid-19 pandemic wrought chaos on many supply chains, it also served as an invaluable lesson on the importance of securing supply chains against resource scarcity. And regardless of the outcome of the U.S. government's review, addressing the threat that resource scarcity poses to the resiliency of supply chains is a strategy all organizations would be wise to adopt.