Dependency on multi-tier supply chain intelligence has increased over the last few years, primarily due to the complexity and inter-dependence that global supply chains have evolved into. According to a Deloitte survey, 79% rank visibility beyond tier-1 suppliers as a critical factor in building supply chain resilience, up from just 23% last year.
Companies are facing a range of risks that create vulnerabilities in global supply chains, underscoring an increased requirement for transparency and management of risk across every level of the supply chain.
According to a McKinsey report from 2022, disruptions lasting a month or more now occur on average every 3.7 years, and can compromise companies’ profits by as much as 40% over ten years. This exemplifies the need for supply chain visibility into multi-tier networks, and intelligence that will help businesses predict and mitigate any kind of disruption, ensure compliance, and optimize operational efficiency.
To understand how multi-tier intelligence can significantly enhance supply chain resilience, it is essential to explore how this can align with broader resilience strategies.
Upstream Supplier Risk Management
Many businesses are exposed to risks deep within their supply chains, which are often masked when companies cannot see through to their secondary and tertiary suppliers. Access to global trade data is crucial, in order to have multi-tier visibility.
For example, the 2020 pandemic brought devastating weaknesses in global supply chains to light as many industries suddenly found themselves highly dependent on Chinese suppliers at the third or fourth tier. By bringing such hidden dependencies to light, multi-tier supply chain intelligence helps a firm develop a supplier diversification strategy that avoids over-reliance on suppliers that are located in areas prone to geopolitical instability or natural disasters.
Downstream Buyer and Market Risk Management
Equally relevant is managing downstream risks. Multi-tier intelligence helps companies monitor distribution networks and buyers relative to potential risks associated with sanctions, instability of a counterparty, export control, and other trade regulation non-compliance. This is especially critical today when inadvertently engaging in business with embargoed or restricted entities can result in severe penalties.
For instance, many businesses unknowingly began doing business with the affiliates of Huawei, following the imposition of global sanctions on them. Multi-tier supply chain intelligence helps in tracking such relationships to ensure compliance and mitigate any legal and financial implications.
Scenario Planning and Contingency Preparation
Scenario planning is one of the most important strategies for enhancing supply chain resilience. Multi-tier supply chain intelligence equips firms with complete mapping of their supply chain, and allows companies to run simulated models that examine potential sources of disruption, such as raw material shortages or geopolitical shifts. This assessment enables businesses to develop more effective contingency plans capable of enhancing their reactions to a crisis.
For example, firms affected by the Russia-Ukraine conflict can use multi-tier intelligence to source from other suppliers in lower-risk locations so that business is uninterrupted. Research by McKinsey shows that companies employing scenario planning are twice as likely to avoid major supply chain challenges.
Supplier Diversification and Resource Optimization
Supplier diversification is another critical feature offered by multi-tier intelligence. This allows companies to identify alternative suppliers in regions and industries, thereby opening up the possibility of multi-sourcing and regional sourcing.
For instance, some U.S.-based companies reacted to the U.S.-China trade war by moving production to other regions such as Vietnam and Mexico.
The best example is Apple, which uses multi-tier supply chain intelligence to adjust production schedules based on real-time data. This is what allowed Apple to manage disruptions during the pandemic, adjusting production schedules to overcome product shortages, especially when Chinese factories were closed temporarily in the early part of 2020.
The company has also strategically diversified its supplier base by moving manufacturing from China to other countries, such as India and Vietnam.
Compliance Requirements and Sustainability Tracking
As regulatory pressure around sustainability and ethical sourcing intensifies, companies are increasingly accountable for the practices of their suppliers. Multi-tier intelligence supports their efforts in ensuring that suppliers abide by the law.
This increases accuracy of compliance checks, and enables businesses to continuously monitor their supply chains for adherence to sustainability and ethical sourcing standards, avoiding expensive legal penalties and reputational damage.
For instance, there was a public outcry about H&M and Zara, after they were linked to forced labor practices in Xinjiang, China. Companies using a supply chain mapping tool would have recognized the issue and moved to different sources.
Improved Supply Chain Agility
Supply chain agility is greatly enhanced by the visibility provided by multi-tier intelligence, because it shows the upstream and downstream processes and flow of goods and suppliers, allowing companies to react to switch suppliers, adjust inventory, or reroute logistics.
During the COVID-19 pandemic, companies with agile supply chains were able to rapidly shift production in response to changing market demands, such as automotive manufacturers switching to ventilator production.
Multi-tier supply chain intelligence has the potential to strongly enhance the resilience of the supply chain, making it an invaluable asset to organizations that need to adapt to more complex global environments.
Anand Samal is trade data analyst at Trademo.