Hindsight is always 20/20 and the merits of investing in risk forecasting technology are no different. But for customers that received late December notifications from risk monitoring service providers two weeks before the impact of the coronavirus disease 2019 (COVID-19) fully revealed itself, that hindsight was invaluable.
Tools that presage risk to a shipper’s supply chain often feel like an extravagance during times of relative calm, but these tools could well be viewed similar to homeowner’s insurance in the aftermath of COVID-19. It might take an event of this proportion to overcome the historical reticence to invest in such monitoring capability, and even such tools have their own limitations in terms of their ability to alert users to so-called black swan events.
Unsurprisingly, the risk monitoring software provider Resilience360 said it’s seen an uptick in shipper interest in the last several weeks. Resilience360 sent out its first alert on COVID-19 on Dec. 31, the day the first case of the virus was reported to a World Health Organization office in China. That was two weeks before the international media began reporting on the outbreak. BlueDot, a Canadian provider of risk monitoring of disease outbreaks, released its alert the same day.
“When Wuhan went into lockdown, you want to quickly understand, do I have shipments, do I have suppliers impacted,” Shehrina Kamal, product director of risk monitoring for Resilience360, told JOC.com.
Time to shine?
Risk forecasting technology, based on aggregating and public and private data sets and putting them in a supply chain context, has been around for years. But the unpredictable nature of COVID-19, is providing such providers, including Resilience360, BlueDot, BSI, and Overhaul, an opportunity to flex their ability to shippers.
That two-week head start Resilience360 gave its customers can be a competitive advantage, Kamal said. Companies that had already integrated alerts from Resilience360 into their planning, purchase order management, or transportation management systems were even better prepared.
To be clear, most companies using risk monitoring software prior to the COVID-19 outbreak had a clear imperative to do so. They either had supply chains based on tight production schedules or high-value goods.
The automotive industry, for example, is highly reliant on just-in-time production processes. The automaker Ford’s European team has used Resilience360 to bring down the time it takes to detect a potentially disruptive event and figure out the impact on its supply chain from 24 hours to two hours, Kamal said.
Not every critical supply chain event is a global pandemic, of course, and that’s the key to understanding that risk monitoring or forecasting tools should be procured from a proactive position rather than a reactive one, Kamal said. A supplier going bankrupt can have an impact on a single supply chain as large as COVID-19 is having on a global scale.
“That approach to managing risk helps create [return on investment], even when there’s not a pandemic,” Kamal said.
The automaker that knows its supplier is going out of business, for instance, can stop payment to that supplier, which may free up $100,000 daily in working capital it would have paid.
A larger logistics draw
Whether forecasting capability is attractive to a wider customer base after COVID-19 will be dependent on whether companies with less apparent risk see value in having more advance notice of disruptions. Managing supply chain risk is not only about buying a forecasting tool, of course. It means tethering information that such a tool provides to people and processes equipped to make appropriate decisions.
“Too often, we focus obsessively on the here and now,” said Daniel Stanton, a supply chain consultant and author of the book Supply Chain for Dummies. “Or, we look at the recent past, and assume that the future will look the same. The reality is that the world is unpredictable. Supply chain leaders need to imagine what could happen, and prepare for the unexpected.”
Stanton pointed to supply chain design tools that help shippers model and test different scenarios.
“But the most effective weapon against a big disruption is really flexibility,” he said. “And that comes from having fast, accurate communications and effective decision-making.”
Those initiatives need ultimately to be driven internally by shippers. Stanton said it’s hard to imagine a scenario where a shipper could outsource risk management effectively to a third-party logistics provider (3PL).
“It is reasonable to expect 3PLs to have some amount of flexibility built into their operations so that they can scale up or down to align with your needs,” he said. “But, at the end of the day, every company needs to understand the dynamics of their own supply chain and understand how a disruption is likely to affect their business. This knowledge needs to feed back into the design of their supply chain, and strategic decisions about which 3PLs to partner with.”
While many analysts have speculated that the COVID-19 crisis could compel shippers to reduce their dependence on globalized supply chains, Kamal argued that investment in a risk-monitoring tool could help a shipper avoid costs related to a major restructuring.
“There’s a reason why manufacturing has been relocated and those advantages are difficult to reshore,” she said. “Bad things will happen. It’s how you prepare for it, and if you know your supply chain is agile enough. Eventually, this will be a competitive advantage when everyone is not losing sales.”
But Stanton said that even the best risk predictor cannot overcome a reliance on too few sources.
“We generally assume that having multiple suppliers for a product increases costs, because you have to support each of those relationships,” he said. “But you can think about that extra cost as an insurance policy that gives you flexibility. If one supplier has problems, you can turn to the others. And if you need a huge increase in capacity, you can spread it more easily across multiple sources. Two of the best ways to increase the resilience of a supply chain are to eliminate single points of failure, and to increase visibility to what’s happening everywhere.”
As for the ROI from such a system, Kamal said the value of investing in risk monitoring is that multiple departments in a shipper can glean value from the information in times of relative calm, and then be coordinated in times of crisis.
“Supply chain disruption is not just the responsibility of one department,” she said. “Logistics, procurement, finance, compliance departments — tools like these can make sure everyone is on the same page.”