Be it the pandemic, US-China tensions, or the Ukraine-Russia war, there’s one casualty that has been common in all adverse global events – supply chains. An interconnected world means faster connectivity and more avenues, but it also means disruptions are never far away. For example, when businesses hoped supply chain disruptions will ebb after the prolonged pandemic, the Russia-Ukraine war put suddenly amplified supply chain issues faced by global corporations.
Supply chain disruptions are usually caused by two factors – external and internal. There are limitations to what one can do to avoid an external disruption. However, if internal factors cause the supply disruption, a company has the scope to do everything to prevent such a breakdown. You must do enough to manage the supply chain issues and get the business back on track in both situations.
Resilience has been one of the top trends for the global supply chain industry in 2021, with supply chain resilience and risk prevention helping companies to mitigate the damage of adverse global events. However, the going has been tough for supply chain managers to operate with a lean structure and just-in-time model. For instance, the global semiconductor shortage forced many companies to change their sourcing strategy or shut shop.
Similarly, when the Ever Given container ship got stuck in the Suez Canal for six days, it held up nearly $9 billion each day in world trade as around 400 ships waited to pass through. It’s important to have better control and monitoring over the entire supply chain. However, the fact is that businesses will continue facing challenges in the supply chain in the future.
Here is how you can work toward managing a supply chain disruption and avoid a breakdown:
Managing a Supply Chain Disruption
Supply chain disruption impacts are measured by possible losses, duration, and predictability. Managing supply chain disruptions is entirely different from avoiding a breakdown. The ideal scenario is when an enterprise has multiple strategies for both scenarios. Here is how you can manage a supply chain disruption:
Communicate with Customers
One of the most critical aspects of managing a supply chain disruption is communicating with customers. You should be upfront about the possible delays and share the reasons. It helps customers understand your position, thereby minimizing the impact on business.
Evaluate Supply Chain Components
It’s time to evaluate the supply chain components and make arrangements about the weak links. Be it procuring components, raw materials, or finished products, procurement organizations should look to establishing connections with possible alternative suppliers, across geographies.
Check the Available Inventory
You should have a fair idea about the inventory at hand. And it’s all the more important when facing a global supply chain disruption. You should check the available stock, for not just the finished material, but also the raw materials and components.
Evaluate Buying Behavior
Buying behavior is continuously changing and an understanding into this behavior can provide with an opportunity to manage challenges caused by supply chain disruptions. For instance, many firms started manufacturing products to combat COVID-19, including sanitizers and PPE kits. By evaluating the changing demands of consumers, enterprises can handle supply chain disruptions in a better way.
As you handle supply chain issues that businesses are facing, it is the right time to optimize the resources available and look at what is necessary for a company to survive. Optimizing production capacity and distribution should be a top priority during such times.
Evaluate the Impact on Cash Flow
Supply chain disruptions always have an impact on an enterprise’s bottom line. However, a good way would be to run a stress test to see the possible areas where your business will get impacted financially. You can make adjustments as required to manage the overheads.
Avoiding a Supply Chain Disruption
Here is how you can prevent a supply chain disruption:
Create an Emergency Plan
One of the best ways you can start to avoid a supply chain disruption is by putting an emergency plan in place. As part of the emergency plan, you can look at setting aside contingency funds for adverse situations.
Stock Up on Inventory
Rather than banking on just-in-time supplies, you should create a stock of various components required to keep the business running. Be it raw materials, finished products, or components; you should have inventory for a few months. It also gives enough time to source from alternative suppliers from across geographies.
Conduct an Audit
Conducting a supply chain audit is often the best way to identify the weakest links. The audit can focus on the potential social, environmental, and political issues and the robustness of the supply chain that can impact your business.
Have Backup Suppliers
You should follow a diversification and backup strategy for your suppliers. These suppliers need to be in different parts of the world. The focus should be on diversification and the identification of backup suppliers.
Adopt Technological Solutions
It has been observed that companies have survived and even increased business value through disruptions if their operations are powered by innovative procurement software and supply chain software solutions. Most AI- and ML-driven software platforms can enable enterprises to identify the possible threats in the supply chain.
These are some of the ways to tackle and avoid supply disruption. One of the biggest learnings from the unprecedented global disruptions in the past decade is that managing supply chains in a global economy needs a fresh, new, agile mindset.
Businesses will take more time to recover and recoup with traditional methods to combat modern challenges. As global supply chains continue to face more uncertain times, it is the right time to look at remodeling your supply chain strategy to be better equipped the next time adversity comes calling.