Supply chain management: building resilience and strategies for mitigating market volatility

If supply chain shocks are new to you, you’re likely new to supply chain.

It’s almost par for the course that blips, booms, rises and falls are the parts of supply chain to set your watch by.

If you’ve been in this game a while, the times when everything’s going well are the times where concern creeps in.

History repeats itself. And just as governments rise and fall, so too do your supply chain fortunes.

In the past, you may have adopted some simple tactics to mitigate market volatility. And they probably worked, to some extent.

Maybe you simply ordered more inventory? Or ordered stock sooner than ever before, to avoid disappointment?

These days, the more robust your thinking, the better your supply chain strategy. And the better strategy you have before the disruption comes, the better prepared you are for the inevitable.

Supply chain resilience is the name of the game. And those who manage it well normally win the race. But this is a marathon, not a sprint.

So, what steps can you take to enable a brighter future for your business?

Let’s start with the supply chain basics

Before we dive into the topic of building more resilient supply chains, let’s begin with the fundamentals.

In the first section of our supply chain guide, we will explore:

  • A supply chain definition everyone can agree on?
  • The importance of ‘good’ supply chain management
  • The pitfalls of ‘bad’ supply chain management
  • Who should be involved in your supply chain decision-making process?
  • What supply chain processes underpin your operation?
  • How can technology support your long-term supply chain success?

What is supply chain management?

Supply chain management is an extremely broad topic. Whether you are deciding which supplier to order from or where you should allocate inventory within your network, the day-to-day supply chain decisions you make have an impact every aspect of your business.

In essence, supply chain management is all about managing the flow of goods throughout your operation. And of course, a harmonious flow of stock depends on a steady stream of robust data as well a tight grasp of the financial implications of your supply chain actions.

From the sourcing of raw materials right through to delivery of the product at its end destination, supply chain management is ultimately the value-add process that allows your business to fulfil your customer’s demand.

Why is supply chain management important?

Your customers measure you by the effectiveness of your supply chain. It’s that simple.

If an order is delivered late, arrives broken or was out-of-stock, to begin with, these are all red flags your customers look out for. The kind of red flags that could lead them to your competitors!

On the other hand, if your supply chain processes are up to scratch, you can be confident that your products are delivered quickly and efficiently with minimal disruption.

Moreover, you will be better prepared to operate flexibly around unexpected volatility to exceed customer expectations at an optimised cost.

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Let’s break down some of the benefits of ‘good’ supply chain management:

  • Minimise the risk of planning errors. 
  • Attain greater control over supply chain costs.
  • Improve service achieved through better availability.
  • Accelerate stock turns to ensure effective use of working capital.
  • Reduce inventory levels & cut waste.
  • Increase responsiveness to customer & market changes.
  • Achieve stronger profit margins.
  • Optimise the use of warehouse space, resources and labour resulting in a more sustainable operation. 

What are the pitfalls of ‘poor’ supply chain management:

  • Increased avoidable costs.
  • Excessive firefighting and poor efficiency.  
  • High levels of excess stock.
  • Increase in preventable out-of-stocks.
  • Poor customer satisfaction resulting in lost customers.
  • Lack of visibility & flexibility to respond to volatility.
  • Poor communication resulting in dis-jointed decisions making.

What are the building blocks of an effective supply chain?

Your supply chain won’t manage itself. That much should be obvious.

To ensure your supply chain runs as smoothly as possible, you need a few critical ingredients:

  1. Engaged people
  2. Effective processes
  3. Flexible systems

Let’s explore the critical role each element plays in more detail.

1) People: Who is involved in your supply chain?

Your supply chain can’t exist in a vacuum.

There are lots of stakeholders with varying degrees of interest and influence.

From the customers you serve, to you team that places the order and the suppliers that manufacture your products, each plays an important role in shaping your supply chain actions.

Supply Chain Management Cartoono Chart

Your customers

The main purpose of your supply chain is to fulfil the needs of your customers. Therefore, it probably makes sense they are seen as a crucial stakeholder within your supply chain decision-making process.

Your customer’s expectations should drive the breadth & depth of your assortment as well as the minimal level of service you need to maintain. As the trigger point for demand (and therefore the main source of your revenue stream), this is a stakeholder you can’t afford to overlook!

Your supplier & logistics partners

“You are only as strong as the weakest link in your chain.” It’s everyone’s favourite supply chain cliché. And with good reason!”

Your suppliers are the stakeholders you count on to maintain a dependable supply of the materials, components and finished goods you need to fulfil customer demand in a timely manner.

But let’s not forgot about the trusty supply chain partners that help get your inventory from point A to point B.

We’re talking about your logistics providers, your packaging suppliers & everyone else involved in the distribution of products throughout your operation.

Strong relationships with your suppliers and logistics partners can make or break your business. So, forget these guys at your peril.

The Management

We have covered external stakeholders, but who is leading the charge internally? Well, The Management team are an obvious starting point.

As the team that is ultimately responsible for shaping the direction and the trajectory of the whole business, management decisions have a direct impact on all supply chain decisions.

From hiring the supply chain team to setting the desired level of service, the CEO and wider board of directors are responsible for setting the vision and strategy for the organization. But more importantly, they also set the tone for how this vision is achieved.

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The Planning Team

Sure, the Management Team outline the business ambitions, but the planning team are there to make sure these dreams and desires become a reality.

Ultimately, the planning team are responsible for anticipating future demand and aligning this seamlessly with supply. By collaborating with other internal teams, suppliers and even the end customer directly, the planning team go to great lengths to ensure the right stock is available in the right place.

No business is exempt from volatility. Therefore, it’s also up to the planning team to anticipate disruption on the horizon and take proactive steps to mitigate risk before it hits the customer. We will explore the topic of supply chain disruption in more detail later.

The Sales Team

Your sales team are the voice of the customer. Their entire world is focused on dealing with customers. This means they have an intimate and personal understanding of your customer’s goals, expectations, and concerns.

On one hand, the sales team play a crucial role in generating demand in the first place. However, as the main point of contact, the sales team also hold invaluable market insight that can be used to enhance the statistical analysis the planning team typically rely on.

The Finance Team

It’s easy to get carried away. Sure, you could fill your warehouse to the rafters with all the stock you could ever need to satisfy customer demand. However, this approach will not do anything for your bank balance.

Thankfully, this is where the finance team comes in!

The number crunchers in finance are there to ensure the financial resources are allocated efficiently and effectively. This means monitoring the financial data and analysing the risks around investments, budgeting, and forecasting.

Given that inventory is likely to be one of the biggest numbers on your balance sheet, the effectiveness of your supply chain decisions is therefore of primary concern. As guardians of the business’ financial resource, this team will often work with teams across the business to improve the efficiency of the supply chain.


Your IT team are the hidden heroes of your entire operation.

To make good supply chain decisions, all of the people above need robust data. More importantly, they need this data delivered in a way they can utilise it.

The IT team are there to keep the systems that underpin your supply chain up and running. But when you consider how much data is flying around your business combined with all the inputs required from customers and suppliers, this is no mean feat!

2) What processes underpin your supply chain decisions?

Your supply chain is a machine with lots of moving parts. As such, there are lots of processes & workflows that are required to keep your operation ticking along smoothly.

Supply Chain Management Cartoon With Gears

Here are some of the core processes that underpin your operation:

Assortment planning

This is the process of working out which products to offer your customers and in what quantities. To achieve the right balance of choice, variety, and quality, we need to think about the needs of the customers, your competitor’s product portfolio and the constraints.

Demand planning

To balance supply with demand, you first need an idea of how much demand you should expect. This aspect of your supply chain is all about anticipating future demand based on historical sales data, current market conditions, and customer trends.

Done well, your demand plans will help you make supply chain decisions with confidence. But, be warned, poor quality forecasts will lead to avoidable planning errors.

Supply planning

Determining future demand is one thing and working out how to fulfil it is another. To achieve your supply chain goals, you need to work with your upstream supply chain partners.

This means optimising orders & delivery schedules to make sure the stock you need arrives in your warehouse when you need it.

Investing in stock and then distributing it around the world comes doesn’t come cheap. Therefore, the decisions you make around sourcing and order volumes should also align with the needs of the finance team.

Inventory optimisation

There are lots of levers you can pull to ensure your supply chain is as efficient as possible. One of the most important is the levels of inventory you hold.

Inventory management is a delicate balancing act between high availability, minimised cost, and optimised use of working capital. If you over-invest in stock, you will lock up working capital and put the squeeze on your cash flow. Invest in too little, and you risk falling short of customer expectations.


As one of the most important parts of the supply chain puzzle, collaboration is key. Thankfully, this is the process that ties all of the people and other processes together to maximize profits and meet customer demand with vigour.

3) Technology

The days of using abacuses & crystal balls to manage your operation are long gone. To cope with the complexity of modern supply chains, businesses need advanced technology that galvanises the people and processes involved.

For many businesses, spreadsheets are typically the weapon of choice. And sure, complicated, and clunky formulas are better than nothing.

But effective supply chain technology should be an enabler for your supply chain success. It should help your people make better decisions. It should help your processes run with precision and speed. It should be the glue that sticks everything together!

Supply Chain Management Cartoon Chart

How should you manage your supply chain out in the ‘wild’?

So far, we have talked about supply chain management from a theoretical perspective.

On paper, the supply chain formula for success probably sounds easy. Involve the right people, set up some clever processes & support it with robust technology, and your good to go!

If only it were this simple!

Sure, if the world was nice and stable, this probably would be the case. However, we are never a few heartbeats away from the next big supply chain disruption.

Take the last few years. we’ve had what most would consider a monumental level of disruption to business.

There’s been worldwide recessions, pandemics, natural disasters, international conflict, and people in power with nuclear codes, you wouldn’t trust with your phone charger.

And so, in the next section of this guide to supply chain, we will explore how you can build a disruption-proof supply chain.
You’ll learn how to build resiliency throughout your supply chain processes.

You’ll understand what supply chain tactics you can deploy to combat volatility.

You will discover how to investigate the costs involved, and how to adapt your supply chain to cope with whatever the world throws at you.

But most importantly, you will find out how to ensure your supply chain is geared up to overcome the challenges today as well as take on the hurdles you may encounter in the future!

Supply chain strategies to combat disruption: Absorb or Respond?

Airline crews have some of the best crisis training in the world. Their response to ‘worst case scenarios’ needs to be absolutely on the money.

But rather than think about what should happen with every eventuality before take-off. They know the protocols inside out. They know who makes the decisions and how to communicate them to respond in record time.

When designing your supply chain, the same thinking can take you a long way.

Don’t spend time thinking about lightning strikes. Or fog. Or rogue missiles.

Focus on preparing everyone involved with the experience and know-how to guide you through.

But let’s bring this back down to earth.

How does this relate to the resilience of your supply chain?

Michelman & Sheffi (1983) describe two methods for achieving a resilient supply chain.

In essence, you can either absorb the risk or you can respond to it.

An absorb strategy focuses on building a protective buffer into a supply chain. Think of this as the supply chain equivalent of the crumple zones on your cars.

All that extra metal & structural integrity might feel like overkill. But should an unexpected accident occur, this extra measure could well save your life.

A respond strategy focuses on the ability to remain flexible.

Sticking with the automotive example, this is a bit like your car’s anti-lock braking system. By constantly adapting to changing conditions, this approach helps you to apply the brakes or gas at just the right moment.

Let’s explore each of these supply chain strategies in more depth.

The Absorb strategy

Achieving supply chain resilience through an absorb strategy is a common and straightforward way of dealing with disruption.

Absorbing a shock is a core competency of supply chains, but it comes at a cost.

Naturally, adding inventory or infrastructure can give you a buffer from demand or supply shocks, and create an advantage over competitors.

You can also create a long-term advantage with an absorb strategy, by giving protection for markets or customers, leveraging expansion opportunities, and exploiting competitive situations.

The cost of caution

Everything in life comes at a cost. And the absorption strategy’s no different.

Common ways to absorb disruptions include building excess production or distribution capacity and even investing in additional supply chain infrastructure.

Without a reliable source of supply, however, these strategies are useless and won’t serve you well.

This is why an absorb strategy generally involves holding inventory at various stages throughout the supply chain. Buts it’s not always the magical silver bullet that will save you in a tight spot.

Many companies invest in safety stocks covering ‘expected’ demand and supply variability.

Yet, these safety stock inventories are not typically catered to the scale of disruption witnessed when disasters occur.

Therefore, you may need to introduce processes to determine the optimal level of protection for both expected and unexpected disruption.

The Respond strategy

Responsiveness is the ability to answer supply and demand shocks through rapid execution. Otherwise called flexibility. Or the art of being quick on your feet.

Respond strategies, unlike absorb strategies, are not necessarily a core competency of supply chains.

That’s because many of its concepts are built on complicated design.

Examples of respond strategies include:

  1. Adopting standardised processes

    Standardisation of processes can help to quickly switch direction when a
    disaster happens.

  2. Concurrent manufacturing/processing

    Allows your business to decrease the time-to-market when changes in demand

  3. Postponed manufacturing

    Leaves WIP inventory in a state it can still be modified to fit changing

  4. Building relationships.

    Information sharing with customers and vendors, upstream and downstream,
    not only benefits time-to-market but also allows for quicker response to

This ‘might’ hurt your wallet

Working collaboratively is a prerequisite for most of the respond strategies above. And like the Absorb strategy, there’s a cost… isn’t there always?!

For a start, it may be more difficult to set up respond strategies in the first place. And on top of that, these strategies may be less proven than filling your warehouse with safety stock.

There’s also a greater difficulty in measuring the financial impact. And if you don’t know how much something will cost, you’re entering into unknown territory. Which is a risky place to take your supply chain.

The best of both worlds?

A difficulty you may face in analysing the right form of approach is working out whether the absorb or respond strategy is the best course of action.

In most situations, the best solution is usually a combination of both.

However, it should be a strategic choice, depending on your market strategy and other factors like margin and the criticality of the product.

But that’s not always an easy thing to spot. Like any other supply chain decision, the trade-off is driven by cost versus benefit.

How to build your supply chain response strategy

Creating a responsive supply chain requires a thought-provoking exercise to imagine all the events that might hinder your operation.

As I mentioned above, however, planning for disasters doesn’t imply having one distinct plan for each.

There’s obviously a distinct physical difference between walking into a warehouse impacted by a flood and a fire, but the impact on business may be similar.

Entering unknown territory is always easier if there’s a map and compass to guide you.

More importantly, providing the people, processes and even the supporting technology with a common focus will pay dividends.

Building the right supply chain strategy then requires:

  1. Mapping possible disruptions and classifying how and where it affects you.
  2. Grouping items based on the impact of disruptions
  3. Mapping sources of supply.
  4. Mapping costs of resilience strategies.

Combining the above information to design a winning supply chain.

1. Mapping possible disruptions

The result of the disruption’s far more important than the actual disruption itself.

Therefore, it’s not required to have a distinct strategy for every type of disruption. In fact, it’s better to group disasters by potential impact.
Sure, fire and water are different entities. But the impact of either at your manufacturing plant will be different in impact to one at your retail stores.

As mapping all possible disruptions and designing a strategy for each is virtually impossible, it’s a good idea to group disruptions by the scale of impact and duration.

Where does a small fire in the warehouse rank to raging wildfires in the location of your most popular stores?

How does a minor delay in shipping rank to a block in the Suez canal?

One idea to help your ranking system is to classify impact by local, national or global brackets, and classify its impact as either temporary or long-term.

Supply Chain Management Cartoon Searching

2. Grouping items based on the impact of disruptions

Not every product within your assortment requires the same strategy.

When designing effective supply chain resilience strategies, a logical place to start is proactively categorising inventory.

For example, if a supplier of one of your C-items is hit by an outbreak of flu, your response strategy will be different. Perhaps, you just have to make do until the supplier gets back up and running.

However, if a supplier of one of your A-items suddenly goes out of business, it should be all hands on deck.

By working in this way, you won’t waste time with discussion or indecision on which products in your portfolio to prioritise for recovery.

3. Mapping sources of supply

As modern supply chains are globalised and interwoven, there are few nodes left that are fully autonomous.

A model that can help you manage this complexity is the Kraljic matrix (all be it with a slight twist).

The criticality of a product and the complexity of its supply determine what strategy to take when working with vendors.

For example, products or raw materials that are critical and have a supply constraint require planning for long-term availability and having great relationships with tier-1 vendors.

If you a supplier of one of your C-items is hit by an outbreak of flu, your response strategy will be different. Perhaps, you just have to make do until the supplier gets back up and running.

In many cases, collaborative relationships with vendors will pay off massively.

Supply Chain Management Cartoon Matrix

4. Mapping costs of resilience strategies

“What’s this going to cost us?”

As mentioned above, the trade-off between absorb and respond is driven by cost vs. benefit. But the impact of a disaster can often be tough to work out.

Evaluating the difference in cost between absorbing or responding is easier.

Some costs you should factor in for comparative purposes:

  1. Holding costs for additional buffer.
  2. Cost for additional capacity.
  3. Cost of additional manpower to maintain.
  4. Higher manufacturing costs due to smaller batches.

When introducing more advanced concepts such as concurrent and postponed manufacturing, there might also be benefits for day-to-day operational costs.

It’s also worth adding that you can not be sure your supply chain plans are watertight until you have crunched the numbers and explored a few potential scenarios.

Supply Chain Management Cartoon Notes

Supply chain management final thoughts & takeaways

Contemplating disaster scenarios is a sobering process.

Even worse than this though is disaster striking and you realise you’ve not given a moment’s thought to a contingency plan; Especially in a resource-intensive business like yours.

But if recent history tells us anything, it’s that ‘stuff’ happens. Whether you plan for it or not. And so, in failing to prepare, you’re preparing to fail.

Both natural and man-made disasters aren’t stopping any time soon.

Absorbing or buffering against disasters can be expensive. But it’s a cost that’s worth its weight if it secures your long-term success or even survival.

A playbook that centres around communication and rapid execution is the gold standard in supply chain resilience planning.

However, there are very few examples in life where talking isn’t a benefit.

Never underestimate a clear communication plan, both internally and externally.

Speed and quality of execution always depend on effective communication with employees, partners, and customers.

  • Do you have a process to quickly workshop decisions?
  • How do you divide up roles among staff? How are these communicated and delivered?
  • What do your customers value most? Speed? Supply? Choice?

Collaboration yields ideas and results.

It creates an opportunity to share investments in absorbing shocks or responding quicker.

Both approaches in this article require close collaboration with suppliers and customers to guard against adverse events. By doing both, you’ll protect your supply chain and ensure products can flow with the least amount of disruption.

To become truly resilient, you have to examine all options and put supply chain strategies in place to absorb shocks in some parts of the supply chain while responding to events in others.

Further reading:

Bloem, D & Rude, J (2022), Supply chain resiliency: Absorb versus respond, Journal of Supply Chain Management, Logistics and Procurement, Vol. 5, No. 1, pp. 50-62

Kraljic, P. (1983), ‘Purchasing must become supply management’, Operations Management, Vol. 61, No. 5, pp. 109–117

Stentoft, J., & Mikkelsen, O. S. (2022), Danske produktionsvirksomheders sourcing praksis set i lyset af COVID19 og brugen af nye digitale teknologier. Syddansk Universitet. Institut for Entreprenørskab og Relationsledelse.

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FAQs about Supply Chain Management

Supply chain management is the coordination and centralised management of any activities involved in the production and delivery of the flow of goods, data, and finances related to a product or service, from the procurement of raw materials to the delivery of the product at its final destination

Effective supply chain management is critical for companies to remain competitive and profitable. It can help to reduce costs, improve efficiency, and ensure timely delivery of products and services to customers.

Some of the main challenges in supply chain management are managing risk and uncertainty, dealing with supply chain disruptions, managing inventory and demand fluctuations, digital transformation, increasing freight prices, and coordinating activities across multiple partners and stakeholders to name a few.

Some of the best practices when executing supply chain management include building strong relationships with suppliers and partners, leveraging technology to streamline and improve visibility and data sharing, and implementing lean and agile supply chain strategies.

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