May 2, 2023 Why All Eggs in One Basket is Risky Business

One of the most stressful scenarios for supply chain professionals today is having all their eggs in one basket.

By Jason Tham, CEO, Nulogy

The COVID-19 pandemic has exposed the vulnerabilities of supply chains worldwide, leaving many businesses scrambling to find solutions for disruptions caused by the volatile global market. One of the most stressful scenarios for supply chain professionals today is having all their eggs in one basket, as seen with the current state of global microchip production, which is heavily reliant on Taiwan Semiconductor Manufacturing Company Ltd. (TSMC), a company regarded as one of the world’s 10 most valuable companies and operates on an island less than one-tenth the size of California.

During the early years of COVID-19, TSMC became a severe bottleneck for microchip production and distribution, and the U.S. auto industry forecasted an estimated $210 billion in lost revenue in 2021 due to a shortage of microchips for automobiles. Today, potential microchip shortages is still a hot topic, given that Taiwan is in the center of geopolitical conflicts, facing continual pressure from China, which views the island as under its control.

The case study of TSMC—and the world’s reliance on its microchip production—should serve as a cautionary tale for supply chain leaders around the world, on the importance of establishing risk mitigation, supplier diversification, and resilience and within their supply chain networks.

The dilemma of TSMC is just one example of how supply chains have yet to realistically evolve their methodologies in the new, post-pandemic, disruption-heavy world in which we live. Over the last 50 years, manufacturing supply chains have perfected the art of Just-in-Time delivery, optimizing their inventories and logistics for lower costs and leaner operations.

The challenge, however, is that this strategy of supply chain management has left precious little room, flexibility, or adaptability in the face of significant disruptions and shortages. Need proof? Just remember when you tried to order something online in 2020. E-commerce surged during the pandemic, but product shortages were all too common as retailers were unequipped to deal with the demand.

The future shows no sign of these disruptions slowing down. Weather patterns are becoming increasingly unpredictable because of climate change. Geopolitical conflicts such as the war in Ukraine continue to impact commodities such as oil and grain. Standards for hiring and retaining labor continue to fluctuate due to global shifts in employment brought about by the pandemic.

Simply put, marketplace volatility will continue to plague global supply chains, and organizations need to start looking at risk mitigation strategies, including diversifying their supply base to increase resiliency toward future disruptions. Having a more distributed supplier network with varying capabilities and capacity allows you to react in a faster and more flexible way to global disruptions that are becoming increasingly harder to predict. Here are some ways to address this issue.

1. The Need for Effective Supplier Collaboration: According to McKinsey, 45% of survey respondents say that they either have no visibility into their upstream supply chain or that they can see only as far as their first-tier suppliers.
   
   While supplier diversification serves to reduce risk and increase resilience, a distributed supplier ecosystem can present challenges in network orchestration. The more nodes there are in your network, the more difficult it is to have real-time visibility over operations and collaborate in an effective manner. To facilitate this within a complex network, organizations need to progress their supply chain digitization maturity and start thinking outside their four walls.
   
   To enable real-time visibility and collaboration within complex supply chain ecosystems, organizations need to progress along the technological maturity curve and shift their focus from internal digitalization to investing with their trading partners to ensure data visibility, collaboration, and orchestration—network optimization which benefits all parties.
   
   
2. Benefits of Supplier Ecosystem Collaboration: Multi-enterprise collaboration platforms are the ideal system through which to drive collaboration in supply chain ecosystems. According to an article by Accenture, 72% of supply chain ‘masters’ believe multi-enterprise supply chain capabilities will be critical to enable their customer experience-led growth.
   
   Gartner also notes that “more than three-quarters (77%) of companies said they are investing in deeper and more collaborative supplier relationships to improve resilience and agility.”
   
   And, in the latest PwC research on digital trends in supply chain, global survey results show that “in recent years, the frontrunners in supply chain digitization have invested in ecosystems in which all supply chain partners are digitally connected” which enables these digital champions to work together with their contract suppliers more effectively.
   
   Investment in building data, automation, connectivity, and intelligence in the supply ecosystems drives tangible value. Multi-enterprise collaboration platforms can reduce a great deal of unnecessary costs across the entire supply ecosystem and improve customer service levels by optimizing for on-time, in-full fulfillment, and mitigating inventory shortages.
   
   
3. Investing in Multi-Enterprise Collaboration: Other notable outcomes of operating on a multi-enterprise collaboration platform includes reduction of expediting costs, enhancement of planner productivity, increases in revenue and margins realization, improvements in inventory optimization, and increases in manufacturing throughput.
   
   Today’s supply chain ecosystems, composed of manufacturers and their partners, must make wise investments in data and connectivity in order to operate at the speed that the market demands. Multi-enterprise supply chain business networks enable real-time collaboration between trading partners by delivering on the promise of real-time visibility and bilateral collaboration, arming businesses with the intelligence and agility needed to achieve long-term, sustainable value.
   
   “By 2026, more than 50% of large organizations will compete as collaborative digital ecosystems rather than discrete firms. The ecosystem has the potential to become the competitive entity of the future, as it can effectively leverage the capabilities of all its members,” said Gartner in “The Rise of the Ecosystem and 4 More Supply Chain Predictions”

Organizations need to consider a solution designed to improve visibility and collaboration between fast-moving consumer goods manufacturers, co-packers, raw materials producers, packaging manufacturers and their supply base. Find a platform that can drive agility and improvement across business processes, manage costs, enhance on-shelf availability, optimize operational excellence and efficiency, and mitigate carrying cost and material waste. This will surely equal success.

As co-founder and CEO, Jason Tham is the keeper of Nulogy’s corporate vision and is dedicated to enabling companies to sustainably meet the needs of everyday people. Under Tham’s leadership, Nulogy has grown to become the global platform of choice for the contract manufacturing and packaging industry and continues to spearhead innovations to enable more sustainable and agile supply chains.

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