Resilience must be compatible with cost effectiveness.

Yet supply chain resilience is not a blank check exercise. Resilience must be compatible with cost effectiveness. Resiliency is compatible with efficiency when it optimizes for cost effectiveness on an expected value basis, rather than unit costs assuming successful shipment. Decades of scrutiny on supply chain efficiency have addressed easy wins. Supply chain experts must dig deeper into the data to discern where resilience and cost effectiveness intersect.

Resilience optimized for cost effectiveness is value accretive enhancing long-term competitiveness. There are several ways to mitigate these disruptions, while maintaining or improving competitive position:

1. Reexamine the true costs of your supply chain structure and policy
Existing policies and strategies optimized solely for operating costs may be suboptimal when considering variability and disruptions. For instance, plant that lay dormant for two months due to unavailability of a SKU that was both small and inexpensive. Apply a standard policy limiting days inventory across all SKUs regardless of unit costs, storage costs and supply chain disruption considerations. Now the plant can adjust its policy to reflect holding and replacement costs.

2. Improve supply chain visibility
Businesses often know their direct suppliers well, but rarely have visibility into their full supply chain network. Disruptions that occur far upstream can ripple down and magnify challenges for downstream partners. Gaining a comprehensive view helps identify and mitigate inherent risks. Supply chain mapping and risk assessment tools are emerging to solve these issues.

3. Enhance supply chain flexibility
Economies of scale optimize on short-term costs but may introduce supply chain rigidity. For example, fixed warehouse arrangements are efficient with predictable, stable supply but inappropriate for the seasonal variability common for retail and e-commerce businesses.

4. Enhance mitigation strategies.
Data analytics that incorporate sensors, real-time data and machine learning can fine tune risk mitigation strategies and enable adjustments in dynamic, rapidly changing situations. Technology platforms provide procurement professionals with insight into supplier options with ongoing capacity to reduce vulnerability and exposure.

Over the past year, COVID-19 has acted as a catalyst for re-evaluating supply chain strategies. In the long run, incorporating resiliency will yield cost savings. It will require short-term investment in the right tools and strategies, but it will enhance long-term competitive positions. A well-designed strategy will be accretive in both short- and long-term timelines. Technologies that support resiliency will become an integral part of building a modern, competitive supply chain. 

Source: https://www.sdcexec.com/software-technology/supply-chain-visibility/article/21533133/ngp-capital-why-rethinking-resilience-is-key-to-reevaluating-your-supply-chain-strategy