Proactive supply chain management is key for mitigating disruptions

Article | August 29, 2024

Canada’s rail work stoppage in mid-August is the latest of numerous events underscoring the importance of supply chain management for several industries. Companies have already been adjusting their just-in-time approach to inventories as globalization has shifted in recent years, and business leaders need to be proactive in exploring new tools that can help them maintain operations when critical parts of their supply chain are threatened. For many fragile supply networks, even a small disruption can have outsized effects.

Especially for industrial companies such as manufacturers, which depend heavily on rail for the transportation of raw materials and finished goods, gaining greater visibility into their supply chains is not just a strategic advantage but a necessity. Consumer products is another sector where this transparency is critical.

Cascading effects

Without clear supply chain visibility, businesses are at risk of being caught off-guard by delays, shortages, and cost increases—whether caused by a labor strike, an extreme weather event or a rare bridge collapse like what happened in Baltimore in March. This lack of insight can lead to cascading failures—an unexpected delay in one part of the supply chain can halt production elsewhere, leading to missed deadlines, unhappy customers and financial losses.

“The capability to predict impacts to a supply chain is of extreme value to an organization; it enables management to mitigate impacts by pivoting to another supplier or mode of transportation and allows the commercial side of the business to proactively communicate,” says Casey Chapman, supply chain leader and a principal at RSM US LLP.

Greater visibility allows companies to anticipate these disruptions rather than react to them. By understanding where potential bottlenecks exist and where alternative routes or suppliers can be activated, businesses can maintain continuity and mitigate risk even when primary transportation methods are compromised. This proactive approach transforms a potential crisis into a manageable challenge.

Tools for transparency

Achieving supply chain visibility starts with data. Companies need to invest in technologies that provide real-time insights into the movement of goods, the status of inventory and the health of supplier networks.

New artificial intelligence-powered supply chain solutions can assess suppliers to help organizations ensure continuity of business and avoid potential supply chain disruptions. Advanced data analytics platforms can track shipments, forecast delays and identify risks across layers of the supply chain before they materialize, including the organization’s direct suppliers as well as second- and third-tier suppliers and beyond. These tools allow businesses to create dynamic supply chain models that can adapt to changes in real time.

For example, if a rail strike were to disrupt a key transportation corridor, a company with full supply chain visibility could quickly reroute shipments via alternative methods, such as trucking or air freight, where feasible. They could also identify suppliers closer to their production facilities or even adjust production schedules to align with the availability of materials. This flexibility is only possible when companies have a clear, real-time view of their supply chains.

For manufacturers, that real-time view needs to include visibility into their entire ecosystem of suppliers and providers. Alongside data-driven insights, strong relationships with suppliers can provide critical information into potential delays or shortages. A disruption at a second- or third-tier supplier can have as much impact as one at the first tier. Collaborative planning and information sharing across the supply chain can help mitigate these risks.

The regulatory imperative

Better supply chain management is not something companies should pursue just to gain a competitive edge; increasingly, regulators are putting forth requirements related to supply chain transparency and fair labor practices.

Canada’s supply chain act, dubbed the Modern Slavery Act, is the latest in a series of regulations responding to the demand for fair labor compliance. It follows modern slavery acts enacted in Australia and the UK, as well as the California Transparency in Supply Chains Act.

Meanwhile, the proposed New York Fashion Act aims to hold fashion companies accountable for their labor practices by requiring transparency and ethical standards in their supply chains. Recent reporting regulations enacted by the U.S. Securities and Exchange Commission on emissions suggest that similar mandates for labor practices in the United States could follow.

Environmental, social and governance issues becoming a greater focus for companies across all industries is another force driving home the importance of supply chain visibility.

“The link between ESG and supply chains is increasingly evident as stakeholders demand higher corporate responsibility standards,” says Alex Kotsopoulos, a partner and ESG advisory leader with RSM Canada LLP. “Middle market organizations need enhanced supply chain transparency to preempt disruptions and comply with ESG regulations.”

The strategic advantage

Companies that invest in technologies to improve their supply chain visibility now will find themselves better positioned to navigate future challenges, whether they arise from labor disputes, natural disasters or geopolitical tensions.

In a world where uncertainty is the new normal, the ability to see clearly through the fog of supply chain complexity and fragility is invaluable. For businesses in the industrials sector, the message is clear: Gain visibility now, and you will be better prepared to keep your operations running smoothly.

This article was written by Casey Chapman, Alex Kotsopoulos and originally appeared on 2024-08-29. Reprinted with permission from RSM US LLP.
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