If you run a company whose success relies on the supply chain working like a well-oiled machine, you know full well just how damaging any supply chain disruption can be to a business’s bottom line. The covid-19 pandemic demonstrated this quite well. It threw companies around the world into disarray, severely impacting their operations and even forcing many to shut down. As countries across the globe implemented protective measures, the newly formed circumstances also caused major supply chain disruptions.
The effect of these disruptions was long-lasting, and many companies are still recovering. For those that survived, the covid-19 pandemic should serve as a learning experience. Now that we all have seen how destructive supply chain disruptions can be, we can have a better grasp on the importance of mitigating them adequately.
What Is a Supply Chain Disruption and Why Does It Happen?
A supply chain is a network of companies and people that participate in the production and distribution of goods. For a supply chain to work well, each relevant party must perform its tasks up to prescribed standards and in tandem with other links in the supply chain.
A supply chain disruption is any event that impacts the functioning of a part or the entire supply chain. Since supply chains can be quite complex and need to work smoothly, even a minor disruption can have major consequences. For instance, a power outage in the manufacturing facility can affect the distribution and delivery schedules and cause the final product to reach the end consumer much later than planned.
There are many different factors that can affect the normal functioning of a supply chain, from bad weather or power outages to personnel shortages, strikes or cost miscalculations. Read on to learn more about the different types of supply chain disruptions and how to mitigate them.
Types of Supply Chain Disruption
Internal
Internal disruptions are caused by events that happen inside the company and are within the control of supply chain managers and other company personnel:
– Manufacturing issues — occur when something interrupts the usual flow of the manufacturing process.
– Transportation issues — happen during the shipping process, such as routing errors, miscalculated cargo and so on.
– Planning issues — errors made during the planning of any stage of the supply chain processes, such as miscalculation of costs or delivery times.
– Operational issues — any disruptions stemming from changes to everyday processes, such as personnel changes or managerial restructuring.
– Contingency issues — occur when a business is not properly prepared to address supply chain disruptions of any nature.
External
Unlike internal disruptions, external supply disruptions are caused by events outside the company itself and cannot be controlled:
– Demand fluctuations — sudden surges or drops in demand can severely impact the supply chain, especially if there are no mechanisms in place to address such events.
– Supply issues — insufficient supply of raw materials necessary for the production of goods will affect the production rate, inventory, and distribution process.
– Operational problems — disruptions to the regular processes of other companies participating in the supply chain. This includes, for instance, any operational issues a company’s supplier might be having.
– Environmental issues — ecological, social, or political impacts on supply chain operations. The covid-19 pandemic is a prime example of external environmental disruption.
How to Effectively Mitigate Supply Chain Disruptions: 6 Actionable Tips
Create a Supply Chain Emergency Plan
One of the worst things a company can do is wait for a supply chain disruption to happen in order to address it. Instead, businesses should have fully-developed contingency plans in case of emergency.
The first step to doing this is identifying all the major supply chain stages and the possible disruptions that could occur at those stages. The next step consists of developing a plan on what to do if those disruptions do happen.
The major points an emergency plan should include can be divided into four categories — prevention, preparation, responsiveness, and recovery. By following these four steps, companies can ensure they have a solid contingency plan in place.
Diversify Suppliers and Manufacturers
Having a diverse pool of suppliers and manufacturers is crucial for disruption mitigation, especially in the case of external operational disruptions. This ensures that, should an issue occur with one supplier or manufacturer, there will still be available alternatives.
To hedge against global setbacks, consider product sourcing diversification and nearshoring. Both strategies can reduce risk by ensuring access to the necessary materials and labor resources.
Businesses gravitate toward product sourcing diversification because it’s an effective way to spread their risk. By having multiple suppliers available for the same product, operations can fall back on a different supplier should one be impacted by unforeseen disruptions.
Improve Supply Chain Visibility
Supply chain visibility is crucial for the successful management of all involved processes. While it can pose somewhat of a challenge to achieve, it is absolutely worth the effort.
A company should have detailed insight not only into their direct suppliers and manufacturers but also into tier 2 and tier 3 participants in the supply chain. Without this, the supply chain cannot be considered transparent.
Supply chain visibility also includes understanding the potential disruptions and risks that come with every participant in the supply process. It is also important to note that, overall, tier 2 and tier 3 suppliers and manufacturers tend to pose a higher disruption risk than tier 1.
Build Up Your Inventory Levels
Backup inventory is a basic yet crucial step in ensuring a company’s readiness for supply issues. With it, even if a major disruption happens, there will be extra goods to fall back on. This is important, firstly, because it ensures that the end consumer isn’t affected by the disruption and secondly, because it buys the company more time to address supply issues.
It is a good idea to stock up before expected high-demand seasons. This can be, for instance, during the Christmas holidays, when consumer activity is high. Of course, if these reserves start running low due to supply issues, it is important to replenish them as soon as possible.
Invest in New Technologies
Staying ahead of the curve is, in general, a good business decision, regardless of the industry. However, keeping up with and investing in new technologies is especially important in supply chain management, as it streamlines and simplifies the entire process.
For instance, supply chain visibility software, such as Worldview, a program developed by Worldwide Logistics Group, helps promote the transparency of the supply chain participants and processes. Additionally, warehousing software, which is usually provided by warehousing facilities, automates the process of tracking and managing inventory stored in warehouses.
Working with the right matters.
Beyond just software programs, investing in new technologies also includes the adoption of ecologically friendly resources and practices in order to promote sustainability in the supply chain. In turn, this can lead to higher reliability and better disruption readiness of supply chains in the long run.
Choosing The Right Partners
Supply chain disruptions are, unfortunately, an inherent part of supply logistics and operations. While good business practices can lower the chances of these disruptions happening, they can still happen, and some of them are simply unpredictable and unavoidable. For that reason, it is just as vital to know how to address them if issues do occur.
Choosing the right partners for your business can play a major role in disruption readiness and mitigation. Worldwide Logistics Group, as an experienced freight forwarder, takes regular precautionary steps to avoid and alleviate any issues that may arise so that our clients and partners can direct their energy and efforts to other, more important aspects of running a business.