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Supply chain expert Wesley Niemann - University of Pretoria
Supply chain expert Wesley Niemann - University of Pretoria

Designing a resilient grocery supply chain

FMCG SUPPLIER NEWS

By Wesley Niemann - Jun 22nd, 11:01

Supply chains are wonderful systems. Meticulously planned and managed to efficiently and effectively facilitate the flow of goods, services, information and cash between entities when, out of nowhere, supply chain risks and disruptions stick their heads out and muddle up the system. 

Such disruptive events cause a ripple effect that could potentially spell disaster for all the entities located upstream and downstream of the source of the event.

The worst part of these disruptions is that they are a reality, and it is not a matter of if, but rather when they will occur. Fortunately, supply chain resilience can help the supply chain and its individual entities to bounce back and continue operations at the same or improved level after a disruptive event. Various methods exist to build supply chain resilience, of which some of the most notable revolve around supply chain design.

Supply chain experts Assilah Agigi, Wesley Niemann and Theuns Kotzé at the University of Pretoria conducted a study to investigate the types of risks faced by the South African FMCG grocery manufacturing sector and how supply chain design strategies contribute to the resilience of these supply chains.

Supply chain risks

The study found a vast array of supply chain risks faced by grocery manufacturers operating in the South African FMCG industry.

The risks in the study can be divided into three broad categories:

1. Demand risks
Demand risks were found to affect the majority of the firms participating in the study and are a result of the sudden spikes or losses in demand brought about by unpredictable buying patterns of consumers. The unpredictability of these buying patterns encumbers the forecasting processes on which many firms base their planning.

2. Supply risks
Supply riskswere particularly evident in the study as local packaging suppliers provide packaging of inferior quality, overcharge for the goods they supply, or simply lack the capacity to meet the demands of the focal firms. As such local packaging supplier risks account for the majority of supply risks for the firm that have a frequent rate of occurrence and a moderate impact on the supply chain.

3. Macro-environmental risks
Macro-environmental risks related to labour unrest stem from low productivity of the workforce as well as labour strikes. All of the firms that participated in the study had experienced at least one labour strike in the five years preceding the study and classified labour strikes as a cyclical risk that has a moderate to high impact on the supply chain.

Design strategies

Fortunately, there lies solace for these firms in the implementation of design strategies that assist the development of responsiveness capabilities, specifically in redundancy and flexibility. Sourcing strategies were mentioned by the participants of the study as a means of improving resilience to supply chain disruptions. Strict supplier selection revolving around criteria such as quality, price, service levels and especially capacity was found to be a major contributor to supply chain resilience. For the majority of the participants, these criteria sent their sourcing efforts to the global market as global suppliers were found to be more reliable and more responsive in the face of disruptions.

Redundant strategies add additional capacity to keep operations up and running when faced with disruptions. Multi-sourcing enabled the participants in the study to ensure a continuous supply in the event that a supplier fails to deliver raw materials as a result of a disruption in their supply chains. Participating firms also commented on the use of strategic stock to provide buffers against potential supply chain disruptions.

Flexible strategies enhance the ability of the firm to sense disruptions which, in turn, heightens the supply chain’s readiness as an element of resilience. Flexible transportation arrangements are considered to be critical to operational continuity as it allows the firm to receive goods from and supply goods to other firms in the supply chain. Factory redesign involves capacity building configurations and allows for operational continuity when factory employees go on strike.

Physical design approaches of the locations from which the firm operates is seen as crucial to the ability of the firm to react to disruptions. The use of a mixed-distribution model is most frequently used and comprises of a few large central facilities in close proximity to manufacturing plants with smaller regional facilities further away. Assisting in the positioning of new facilities, evaluation of current facilities and identification of risk areas, participating firms gained substantial benefits from the implementation of supply chain mapping.

Strategy implementation

There’s always a catch when it comes to supply chain strategies, and in the majority of cases that catch lies in the cost of implementation. In implementing the design strategies for resilience, participating firms observed that even though there is a cost versus availability trade-off present in these decisions, they would gladly incur the costs of implementing the strategies and forego interim savings given that the price of recovering from disruptions is then significantly reduced.

So fret not, practitioners in the FMCG grocery manufacturing industry. Using this study as a guide, practitioners are reminded that there exist clear links between the disruptions caused by various supply chain risks and the inherent resilient capabilities of supply chain design approaches that assist firms in continuing operations in the face of such disruptions.

 

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