What is supply chain resilience?

Resilient supply chains maintain continuity by minimizing the impact of disruptions and ensuring customer satisfaction. Key pillars of supply chain resilience include contingency, flexibility, visibility and collaboration. These pillars allow businesses to address vulnerabilities and adapt quickly to evolving circumstances.

Technologies such as artificial intelligence (AI), machine learning (ML), blockchain and digital twins can enhance supply chain resilience. They can also provide real-time insights that improve decision-making, operational efficiency and supply chain networks.

In today’s interconnected world, supply chain risks are inevitable. The COVID-19 pandemic revealed the vulnerabilities of global supply chains and how quickly disruptions can cause cascading effects across industries. For example, manufacturers of semiconductors faced shortages and delays for critical raw materials, severely impacting global production of cars, smartphones and gaming systems.

Since then, supply chain leaders have recognized the need to prioritize resilience. And yet, according to a McKinsey survey, many respondents are still struggling to effectively manage supply chain risks, with significant gaps in their ability to mitigate them.¹

Building resilient supply chains provides several key benefits for businesses, including:

• Improved business continuity: A resilient supply chain ensures that operations continue to run smoothly despite disruptions, reducing the risk of shutdowns. Businesses can maintain procurement and functionality, optimize inventory management, minimize downtime and enhance customer satisfaction.

• Better risk mitigation: By proactively identifying risks and implementing strategies to mitigate them, companies can avoid severe disruptions. Predictive analytics and AI tools can help businesses anticipate potential problems and adjust sourcing or production strategies before they affect operations.

• Enhanced agility and flexibility: Resilient supply chains are agile, enabling businesses to adjust to changes quickly. Diversifying suppliers and nearshoring operations can reduce the risks associated with relying on single sources or distant regions.

• Cost reduction: Although initial investments in resilient supply chain technologies might be high in the short term, they can lead to cost optimization in the long term. By reducing waste, optimizing lead times and reexamining procurement strategies, businesses can lower overall costs and improve profitability.

• Sustainability and compliance: Resilient supply chains often incorporate sustainability practices, such as ethical sourcing and renewable energy. These practices can reduce environmental impact, improve brand reputation and meet stakeholder demands for responsibly sourced products. They can also help ensure compliance with regulations such as the Corporate Sustainability Reporting Directive (CSRD).

Resilient supply chains typically exhibit four core components: contingency, flexibility, visibility and collaboration.

To strengthen supply chain resilience, companies can consider a combination of proactive planning, technology adoption and operational flexibility. Often, resilience strategies focus on critical supply chain practices such as forecasting, inventory management, supplier management and commodity management.

Effective demand forecasting requires visibility across the entire supply chain to anticipate demand, identify risks and proactively manage disruptions. Many organizations invest in advanced demand planning and forecasting tools to improve supply chain management, optimize safety stock and respond to market fluctuations. For example, companies can explore tools such as AI-driven demand forecasting or blockchain for improved supply chain transparency and predictive insights.

Additionally, a comprehensive risk management plan—regularly updated with input from key stakeholders—can help businesses identify, prioritize and respond to potential supply chain risks more effectively.

In response to longer lead times and increased supply chain disruptions, businesses are reimagining their inventory management strategies. For instance, many retailers are shifting from just-in-time (JIT) models, which emphasize efficiency, to just-in-case (JIC) models, which prioritize safety stock. This tactic can help businesses gain flexibility and avoid stockouts during demand fluctuations.

Companies are also adopting automated inventory management tools to mitigate supply chain bottlenecks and ensure material availability. Using real-time data analytics, businesses can dynamically adjust inventory levels in response to shifting market conditions.

Strong, collaborative supplier relationships are essential for mitigating supply chain risks. Systems that continuously monitor supplier performance metrics (such as quality, delivery and capacity) can help identify issues early and maintain a high level of service from suppliers. Companies can also pursue diversification. Strategically diversifying an ecosystem of partnerships through multisourcing and nearshoring can minimize the impact of regional or geopolitical disruptions, improving flexibility. 

Finally, organizations can use supplier data to manage risks: Establishing shared data platforms with suppliers and logistics providers allows for early detection of potential risks. These platforms enable companies to proactively address issues before they escalate.

Effective commodity management improves supply chain risk management, maintains production continuity and enhances overall supply chain performance—even during periods of instability. For example, companies can use hedging strategies or long-term contracts to stabilize costs and reduce the financial impact of price volatility. 

To measure the effectiveness of a resilient supply chain, companies can track key performance metrics. Three key metrics are: 

Time-to-survive refers to the length of time a business can continue to operate during a supply chain disruption without experiencing severe operational or financial setbacks. This metric measures the ability of a supply chain to endure disruptions, such as shortages or delays, while still fulfilling customer orders and maintaining business continuity.

Time-to-recover is the period that it takes for a business to return to normal operations following a disruption. The quicker a business can recover, the less impact a disruption will have on the customer experience and overall performance. Reducing time-to-recover is essential for maintaining a competitive advantage and ensuring that businesses remain resilient in the face of unexpected events.

Time-to-thrive is the duration it takes for a supply chain to not only recover but also capitalize on opportunities after a disruption. A resilient supply chain does not just return to normal; it positions the business to grow postdisruption. Businesses that thrive after disruptions are often those that adapt quickly, innovate and refine their processes in the aftermath of a crisis.

Despite the clear advantages of resilience, companies face several challenges when attempting to build and maintain resilient supply chains:

• Complexity and globalization: Managing a global supply chain can be challenging due to the increased risks associated with geopolitical instability, transportation delays and natural disasters. As supply chains expand across borders, the complexity of risk management and visibility increases, making resilience harder to maintain.

• Lack of end-to-end visibility: Without complete visibility into the entire supply chain, businesses can struggle to identify and address disruptions quickly. Siloed systems and outdated infrastructure can cloud supply chain visibility and prevent companies from gaining real-time insights into supply chain performance, limiting their ability to act proactively.

• Technological integration: Many businesses still lack the infrastructure to implement advanced technologies such as AI, ML and blockchain at scale. Integrating these technologies into existing supply chain systems can be complex, requiring significant investment and a shift in operations.

• Cost and resource constraints: The upfront costs of building a resilient supply chain, including investments in redundancy, automation and advanced technologies, can be prohibitive. However, the long-term benefits—such as improved forecasting, reduced disruptions and greater agility—usually outweigh the initial costs.

Businesses are using various technologies to help build supply chain resilience:

AI and ML are transforming supply chain management by enabling predictive analytics, demand forecasting and real-time decision-making. These technologies can help businesses anticipate disruptions, optimize inventory and accelerate the digital transformation of their supply chain.

Blockchain technologies can enhance supply chain transparency, providing a secure and immutable record of transactions. This ledger can help improve traceability, reduce fraud and increase trust across the supply chain—especially in industries with strict compliance standards.

A digital twin can provide a virtual representation of a supply chain, allowing businesses to simulate scenarios and test strategies without disrupting operations. This technology can help businesses identify potential vulnerabilities and optimize processes for greater resilience.

Internet of Things (IoT) devices enable real-time monitoring of inventory, equipment and environmental conditions, offering valuable insights into supply chain performance. By connecting these devices to enterprise systems, businesses can react quickly to potential disruptions.

Cloud platforms provide scalable, flexible solutions for managing supply chains. These platforms allow for real-time data access, integrate seamlessly with other technologies and can help improve collaboration across global supply chains.

Robotic process automation (RPA) automates repetitive tasks, improving operational efficiency and reducing errors. By automating routine processes, businesses can respond more quickly to supply chain changes and reduce the risk of disruptions.