It is hard to imagine that even the sharpest supply chain planners a year or even six months ago could have fully anticipated the situation in which we now collectively find ourselves: Tariffs, reciprocal tariffs, tariffs on pause for 90 days…supply chains are facing rapid changes from dynamic forces that are undeniably reshaping businesses and economies around the world.
In the midst of this chaos, where should supply chain leaders concentrate? Focus on how you can plan and build resiliency in your supply chain.
In reality, your choice of path forward is on a continuum. It should not be only frenzied reaction or total inaction. “Show patience in reacting… but show aggressiveness in planning.” This quote, from Blue Tiger International CEO Tom Cook, encapsulates the approach that the current landscape demands.
Let’s not forget that supply chain professionals deal with crises all the time. A plethora of tariffs and reciprocal tariffs have led to the current, wide-ranging disruptions; however, people in your organization undoubtedly learned many lessons from the pandemic-induced chaos. And ideally, your supply chain has a playbook with various scenario plans, processes for response and recovery, and documented approaches for dealing with disruption whether it is an extreme weather event, labor strike, transportation breakdown, or a myriad of other disruptions. Apply those lessons learned to today’s reality. Create plans for different scenarios. Maybe add a new scenario to your contingency playbook.
Let’s get beyond the generalities and focus on two key questions to determine what aggressive steps you should take to build a more resilient supply chain.
What percentage of your organization’s revenue is derived from products that can be manufactured at more than one location?
Having multiple production locations might seem like a widely adopted strategy, but reality tells a different story. In an APQC cross-industry, global benchmarking survey of 470 organizations, those at the median (midpoint) report that only 28% of their revenue comes from products that can be produced in multiple locations. That means 72% of revenue is at risk if that factory goes offline, gets hit by a hurricane, or experiences another type of disruption. Even at the 75th percentile, a full 60% of revenue is derived from products made in just one manufacturing location.
Get aggressive to mitigate this risk. Prepare contingency plans to distribute production or designate alternate locations that can take over manufacturing when needed, either for the short or long term. Diversify production locations until products that have multiple potential manufacturing points represent at least 50% of revenue.
What percentage of your total active supplier spend could, if needed, be spent on backup, pre-qualified suppliers should the current supplier become unavailable?
Examining supply chain resilience through the lens of sourcing flexibility reveals another stark reality. What percentage of active supplier spend can your organization easily shift to alternate suppliers? Out of 536 companies in APQC's research, those at the median report that they can only shift 30%. That means 70% of the active spend is frozen with current suppliers, whether they can fulfill their obligations or not. Tariff risks aside, what if a key supplier goes bankrupt or is based in an area beset by wildfires?
Resilience involves increasing flexibility to reallocate active spend to backup, pre-qualified suppliers if current suppliers become unavailable. When identifying alternate suppliers, take location into account, and have a supplier risk management plan in place. Do not forget your due diligence with regard to vetting cyber risks related to new suppliers. Start now to identify and qualify alternate sources of supply, making sure that potential backup suppliers can ramp up to produce the volume you need within your time constraints.
Reframe Disruption as Opportunity
Many supply chain professionals are experiencing a whiplash sensation as tariffs are imposed, paused, and retracted; global instability rises; and economic shocks become the norm rather than the exception.
Despite the unpredictability of the current landscape, it presents supply chain leaders with an urgency and an opportunity to improve resilience. Let go of the wait-and-see approach and the “desperate measures” mentality. Instead, start embracing aggressive planning based on hard data and don’t cut corners. Now is the time to start, because while you may not be able to stop the fire, you can make sure the smoke detector has fresh batteries.
Follow and join APQC for more Supply Chain Resilience Practices, including the publicly available Supply Chain Resilience: Cross-Industry Report.