The just-in-time model, pioneered by Toyota, relies on a delicate balance between production, shipping, and stable demand. When this balance is disrupted, as happened during the pandemic, it can trigger a cascading domino effect of supply chain chaos. Lockdowns, labor shortages, and skyrocketing demand for consumer goods caused shutdowns at many of the world’s largest auto factories, leading to an estimated $60 billion in lost sales.
This vulnerability is not new – experts have been warning about it for decades. But the scale and impact of the recent disruptions have been unprecedented. According to research by Accenture, 94% of Fortune 1000 companies experienced supply chain disruptions from COVID-19, and 75% had a negative or strongly negative impact on their business.
The Rise of Supply Chain Fraud
The complexity of modern supply chains, with their extensive networks of third-party suppliers, distributors, and partners across the globe, has also made them more vulnerable to fraud. Supply chain fraud can take many forms, from bribery and money laundering to falsified transactions and inventory theft.
The “fraud triangle” of motive, opportunity, and rationalization explains why supply chain fraud is on the rise. When companies let their guard down on risk monitoring and evaluation, it creates opportunities for unscrupulous individuals to exploit weaknesses in the system. And with the potential for significant financial gain, the temptation to commit fraud can be strong.
The impact of supply chain fraud can be devastating, leading to immediate financial losses, ongoing litigation and audit costs, and long-term reputational damage. Yet, according to a 2017 Economist Intelligence Unit report, only about 30% of supply chain executives say their companies are addressing corruption and bribery.
Strategies to Improve Supply Chain Resilience and Cost Control
To mitigate the risks of supply chain disruptions and fraud, companies need to adopt a multi-pronged approach:
Increase Visibility and Transparency
Improving visibility into supplier processes, sustainability practices, and internal inventory levels can help companies better manage expectations and avoid unpleasant surprises. Real-time data and analytics can also enable more accurate forecasting and scenario planning to anticipate and respond to potential disruptions.
Build Backup Inventory
Maintaining a buffer or safety stock of products can help companies meet demand spikes without resorting to price hikes or shortages. While this extra inventory comes with additional costs, it can be a crucial safeguard against supply chain disruptions.
Strengthen Supplier Relationships and Performance Monitoring
Closely monitoring supplier performance, including contract compliance, quality, and financial health, can help identify potential issues before they become major problems. Maintaining open communication and collaborating on solutions can also strengthen these critical partnerships.
Embrace Continuous Improvement
A commitment to ongoing process optimization and innovation can help companies streamline their supply chain operations, reduce costs, and become more adaptable to change. This includes leveraging technology, such as ERP systems and predictive analytics, to identify inefficiencies and make data-driven decisions.
Align with Customer Expectations
Aligning supply chain strategies with customer needs and delivery expectations can help companies avoid overproduction, excess inventory, and other costly inefficiencies. By focusing on meeting customer demands efficiently, companies can better control their supply chain costs.
