When the supply chain delivers products and services on time, the inner workings of the intricate processes between buyer and seller go unnoticed. However, on the contrary, when things go wrong, teams find themselves at the mercy of the unknown, whether in the event of a transportation blockade, pandemic, natural disaster, or bankrupt supplier. Shelves go bare, orders are delayed, and end customers become unhappy. Consequently, teams quickly recognize the value of protecting their supply chain before serious and costly disruptions occur.
That said, analyzing each stage of your production flow for risks, and mitigating against them, is a step easier said than done. To help, our experienced vendor management experts came together with a list of seven practical steps teams can employ to reduce the risk of supply chain disruption, thereby safeguarding revenue to the greatest extent possible.
What is a Supply Chain Disruption?
To set the stage, a supply chain disruption can be defined as an event, crisis or unexpected change that negatively impacts the chain (or network) of organizations, teams and activities that take a product from the supplier to the end user. These parts may be integrated at different levels of complexity, including different tiers of participants, making the end-to-end supply chain process prone to at least some level of risk.
Responding to Supply Chain Risk
With this definition of a supply chain disruption in mind, here are a few steps your team might find worthwhile to take.
1. Build A Specific Emergency Plan
Naturally, when an emergency takes place, the first step is creating a plan. As a part of this plan, teams must be ready to follow a given set of procedures for handling sudden or unexpected situations. You might add contingencies, including rerouting items between warehouses or setting aside an emergency fund for spot buys, among other considerations.
While building this plan, vendor management teams are encouraged to be as specific as possible, including details around the type of disasters most common in your area based on local statistics, how a global catastrophe, like a worldwide pandemic, could affect your supply chain at large or any other opportunities that can help improve or identify what you or your team did right to remain prepared. Within this plan, you will also want to ensure more frequent disruptions have more detailed contingency plans. In contrast, those with reduced frequency, may be mentioned, but will likely have solutions that are covered by the other contingency plans you have already defined.
Your team’s emergency plan is not a one-and-done item on the list. Rather, as your team responds to different disasters, onboards new employees, or becomes aware of new regulations, annual reviews will become necessary to ensure your team is in the best position to respond to disruption.
2. Maintain Minimum Safety Stock Levels
It's true that storing supplies is one major expense that manufacturers and retailers like to avoid. However, rather than seeing this expense as right or wrong, teams are encouraged to think of storage costs as more of a balancing act. Consider that in the event of a major disruption, that little bit of extra stock might become your saving grace. Therefore, some firms have benefited from keeping a small and calculated reserve of finished items, components, or other raw materials on hand to carry them over. Although it will vary, the exact amount will be set in relation to the cost of lost production over the length of the disruption, as compared to inventory holding fees.
Alternatively, in cases where keeping enough essential storage on hand is not possible, teams are encouraged to ready their emergency plans with a reserve of backup suppliers.
3. Secure Your Backup Suppliers
While arranging upside agreements with your current suppliers can help in the event of increased or decreased production, every business is still encouraged to maintain a roster of prequalified backup suppliers. As an example, perhaps your suppliers are all located in the same geographic region when a tsunami wipes out major infrastructure. In this occurrence, your team will count themselves fortunate that they were engaging in a relationship with a backup supplier on the other side of the globe.
Typically, the most time-intensive process when choosing a supplier is the qualification process, which may include steps such as the provision of a sample material that meets certain tolerances. Therefore, prequalifying a supplier and/or backup supplier, can significantly reduce the impact of a disruption.
It is worth noting that strategic teams will consider the diversification of their suppliers in terms of physical location and other constraints long before they consider which backup relationships they want to pursue.
4. Remember Collaboration Is More Than a Buzz Word
Although it may not always feel like it, when your team and your supplier are sitting at opposite ends of the negotiation table, supply chains operate best when they are a collaborative effort. When teams look at a problem from the same side, they often find a solution more effectively than any single party on their own, a reality that continues to ring true in risk planning.
Consider that your supplier may have insights into different risks and opportunities that your team doesn’t see. One example is if an organization is engaging with more Original Equipment Manufacturers (OEMs), in these cases, more collaborative opportunities will exist, that when executed can result in greater productivity, more efficient processes and therefore significantly increased margins. Alternatively, your team might work closely with your manufacturers to create something that helps to distinguish your business, such as new technology or a new process that may give you a competitive advantage, thereby increasing your top line. Or, at the very least, working together will ensure that suppliers’ risk management and business continuity strategies are in alignment.
5. Incorporate Risk Evaluation Tools
With more advanced tools and technology, teams can be even more calculated when evaluating threats, including cyberattacks, shortages or other potential problems. Such tools may include environmental analysis tools, supporting apps, IT solutions that calculate cyber threats or artificial intelligence (AI), may allow your team to anticipate a disruption earlier or be more prepared for a certain type of disruption, for instance, if data suggests a major natural disaster is imminent, your team can prepare their response accordingly.
6. Keep Communication Lines Open
Even with a foolproof plan, there is a chance things will go wrong. That means, in addition to understanding the risks you are up against, your team must also operate with some adaptability. For purchasing organizations, this means keeping the lines of communication open with your internal team and any partners to ensure that you are aware of any disruptions and are ready to communicate the next steps.
7. Ensure End-to-End Visibility Becomes a Standard
Having visibility into what your team is up against can be complicated, given the sheer number of processes in the supply chain. Therefore, teams are encouraged to leverage tools that give a “single pane of glass” view into their end-to-end processes, to ensure that the right people are made aware of any issues as they arise and can deal with them in a timely manner.
With many teams already leveraging an Enterprise Resource Planning (ERP) system to combine their data, the only remaining part of the equation is finding a dashboard-like solution to surface relevant insights.
To learn more about the ConvergentIS strategy to reducing supply chain disruption, we encourage you to check out our secret to successful vendor management.