Supply chains have faced unprecedented challenges over the past few years. Shutdowns and delays from the COVID-19 pandemic, wildly shifting consumer demand, natural disasters and international conflict have made disruption the new normal. 

As difficult as this time has been, it presents supply chain executives with an opportunity. It’s become clear that the industry’s traditional way of doing things doesn’t hold up under stress. Supply chains must adapt to ensure future pressure doesn’t cause the same level of disruption. Here are eight ways organizations can fortify against these challenges.

Diversify

One of the most important lessons learned from recent disruption is the need to diversify. Single dependencies for suppliers and 3PLs minimize costs, but this approach is far too volatile in the long term. By contrast, if companies have multiple sources, a major disruption at one won’t be as impactful.

High supplier diversification can cut GDP decline in half amid a significant labor crisis, compared to a single dependency scenario. Those savings are worth the extra costs of sourcing from multiple parties.

This diversification must be geographic. Two separate companies can experience the same disruption if it stems from an issue in their shared location. Having partners across regions minimizes the impact of area-specific challenges. The ongoing semiconductor shortage is all the proof businesses need of the dangers of dependencies on single locations.

Reshore and Nearshore

Executives rethinking their sources should aim to reshore and nearshore some operations. Geographic diversity is still important, but companies should balance it with shortening the distance between points in the supply chain. Companies closer to their suppliers can quickly adapt to any incoming disruptions, minimizing their impact.

Many manufacturers have already recognized the need for this shift. According to a 2021 survey, 83% of North American manufacturers are likely to reshore after the COVID-19 pandemic. This movement could add as much as $443 billion to the U.S. economy, so reshoring can stimulate growth on top of improving resiliency.

Maximize Transparency

Another important step in fortifying against stress is improving visibility across the supply chain. Companies closer to their suppliers can quickly adapt to any incoming disruptions, minimizing their impact. Supply chains must embrace digital technologies to gain that transparency.

Internet of Things (IoT) devices can provide remote, real-time updates on shipment locations, conditions and similar factors. Supply chain organizations can also use cloud data management platforms to consolidate all their information and make sharing it easier. Executives should work within their companies and partners to employ these technologies and provide more accessible, timely access to critical information.

Tailor Approaches to Specific Products

Many supply chain executives have responded to recent disruptions by moving away from just-in-time processes. While a purely lean supply chain creates risk amid unforeseen circumstances, the ideal way forward is more nuanced than simply improving responsiveness and holding more safety stocks. Businesses should instead tailor their approach depending on the specific product.

Products with high demand volatility but lower shipping volumes work best in a more flexible environment. By contrast, low-volatility, high-volume items are inherently less risky, so a lean approach works well for them and can reduce costs.

This segmented strategy has helped some companies see 20% revenue increases and reduce supply chain costs by minimizing stock-outs and delays. Businesses should review their products and related trends to see how each segment can benefit from a different approach.

Create Strong Partnerships

Supply chains are complex, interconnected networks, so executives must look outside their own operations to build resiliency. Businesses must also foster closer relationships with their partners to streamline negotiations amid volatility and enable smoother responses to incoming disruption.

In 2020, 48% of beneficial cargo owners had to ask forwarders to renegotiate their contracts, compared to just 28% in 2018. Changes like this are inevitable in some crises, so companies must be able to handle them as smoothly as possible. That’ll be challenging if they don’t have strong relationships with these partners before the crisis strikes.

Executives need to start bolstering these relationships now. That includes working closely with current and potential partners and increasing data-sharing between companies.

Capitalize on AI and Digital Twins

Many digital tools can help supply chains become more resilient. Some of the most important to capitalize on are artificial intelligence (AI) and digital twins. These technologies can help turn data into insights to enable more effective, timely adjustments.

AI, specifically predictive analytics, can analyze trends in customer purchases and wider industry actions to predict incoming changes. Businesses can then adapt as necessary to meet shifting demand or prepare for supplier delays or higher prices. These quick responses will mitigate potential disruptions.

Similarly, digital twins let businesses simulate various events in a virtual recreation of their supply chain to see how they’d hold up. They can then find areas to improve and see what worked well to better prepare for emergencies.

Automate Where Possible

Another technology that plays a crucial role in supply chain resiliency is automation. Worker shortages are pervasive, with the trucking industry needing millions of drivers and warehouses struggling to attract employees. Even as these challenges fade, they’ll likely recur in the future, but automation mitigates their impact.

Supply chain organizations can’t automate every position, but they can apply it wherever possible. That includes robots and software automation. Implementing these tools will reduce worker demand and improve productivity, making it easier to sustain high output even amid a labor crisis.

Embrace Flexibility

Amid all these other steps, supply chain executives must adopt a spirit of flexibility. Adaptation and change are intimidating and can cause initial disruption, but they’re essential to staying resilient in the face of larger challenges. Businesses must be careful not to resist change or fear uncertainty.

Studies have found a direct positive relationship between supply chain flexibility and customer responsiveness. The more a network can adapt to incoming changes, the better it can respond to its customers’ needs.

Even as companies reorganize their supply chains and move past inefficient conventional strategies, they must understand the work doesn’t end there. As new trends, technologies and information emerge, best practices may change again. A spirit of flexibility is crucial to staying resilient in the future.

Supply Chains Must Prepare for Disruption

At some point, supply chain executives must accept that some disruption is inevitable. Businesses can’t avoid all unforeseen circumstances, so they must prepare to adapt to and manage them.

These eight strategies will help supply chains protect themselves from future stress. Learning from the shortcomings of the past will better equip companies for tomorrow.