Five ways to Tame the Chain: Mitigating Supply Chain Disruption
Supply chains are essentially an incredibly complicated ballet of movements by machines, people, moving parts, supplies and material for use at precisely the right time and in exactly the right place.
That is what a supply chain looks like. It may only extend from one end of a room to another, or it may stretch out over multiple continents. Regardless, when it is blocked, choked or disrupted, the production process is in danger of shutting down.
Supply chain disruption is a major problem for industry. A recent study revealed that 40% of companies surveyed in the US last year reported significant supply chain disruption[i]. It may be tempting to simply shrug your shoulders and assume it is just a part of doing business, but the fact is there are some things companies can do to insulate themselves from the interruption of supply availability.
There are lots of things that are prescribed to mitigate disruption issues in the chain. We’re going to look at some obvious ideas as well as a few that perhaps have not been discussed as much.
Many products, processes and improvement strategies are based on the notion of shortening lead times. In this context, we mean lead times between product inquiry and production scheduling.
The idea is that we all love placing our Amazon order at midnight and receiving it in the mail the next day. This is what we’ve come to expect. This may work with a medium-size brown sweater, but projecting that expectation on a manufacturing facility that makes complex products—like specialty vehicles or industrial equipment—is a whole different matter.
Customer-driven, demand-driven or pull-based manufacturing is great; it does ensure less waste and increased customer satisfaction. But, it also places the supply chain under great stress.[ii]
Obviously no one wants to look for ways to extend lead times, but, what if you could move your purchasing actions to an earlier point in the inquiry-to-order process? What if you gave your manufacturing process a head start?
You most likely have data collected on behavior associated with your buyers. Analysis of that data should reveal the percentage of inquires that turn into sales for certain types of products.
Rather than waiting for a firm order, initiate your part and supply orders during inquiry for products that prove to be reliably predictable. This way you are literally extending the supply chain lead time without extending the overall transaction time.
Obviously, you don’t do this with high-risk or major-commitment products. But much of the pressure exerted on your supply chain can be partially relieved by selectively using this process.
Your marketing automation, CRM systems and web traffic monitoring data should be helpful in facilitating this type of strategy.
Closely related to the first technique is the practice of forecasting. Moving to a demand or pull model for manufacturing doesn’t mean you are dumping your need for forecasting. Planning and budgeting still require some fortunetelling skills.
While most manufacturers have not abandoned forecasting, they certainly place less emphasis on it. Many ERP system purchases were made precisely to accomplish better forecasting. Assuming you had ERP, you have the data to analyze in your forecasting process.
Accurate forecasting can better inform decision-making on purchases of certain types of high-consumption parts and supplies. These forecasts can be structured to reflect buying patterns over the course of a year for dynamic types of product demand. Scheduling buys and the receiving of supply-product inventories can reduce the strain and need to instantly react to the many types of material requirements. Some will recognize this as Strategic Stock.[iii]
Some will say this is just a way to increase inventory, and in a way, that is true. But coupled with the increase is a better forecast for usage. You’re not necessarily reducing inventory turns or maintaining a larger inventory onsite, you’re doing a better job of matching inventory on hand to need when it is needed and timing your buy orders accordingly.
Reduced Production Defects
How much of your work-in-process ends up shipping out the door to a customer? If you are losing product through defective assembly, production errors or breakage, you must consider this as an opportunity. A complex product removed from the line because a defect is discovered means first, a delay in satisfying that customer’s requirements and second, additional stress on your supply chain to replace the supplies and parts now lost.
Avoidance of the defect mitigates the customer and supply chain issues at the same time. Consider your quality processes. Are you using some sort of TQM or Continuous Quality Improvement process?
One of the keys in this area lays in your approach to risk and decision-making. Quality starts with estimating risk. When you walk into any casino in the world, you will first see that each of us has a unique approach or tolerance for risk. You will see people distraught because they’ve lost 20 bucks and others doubling down following the loss of their home.
In the area of supply chain management, a little caution—a bit of overestimating will drive decisions that result in far fewer disrupted cycles. Also, application of this practice will result in fewer errors in general throughout the production process.
Fewer errors, fewer lost parts, fewer disruptions, fewer defects and more on-time completions.
Redundant Sourcing and Production
The old saying about eggs and baskets applies here. Committing your business to the performance of a single supplier is sometimes unavoidable, but never preferable.
Sourcing for many products and supplies can be spread across multiple sources either by source or destination region. Multiple sources is obvious.[iv] If you aren’t dependent upon one entity to deliver material, you have the advantage of backup in times of disruption and of competing entities for larger orders.
On the production end, all of the threats for disruption such as localized disasters, market fluctuations and labor issues are mitigated by moving production to other sites where the threat does not exist.
Maintaining multiple facilities with the ability to back each other up is a critical element to any plan that addresses general risk vis-à-vis threats and disaster recovery.
This is not entirely practical with some complex products that require specialized production facilities. But, for less-demanding products, this is a good way to ensure business continuity in the event of any number of local disasters.
Your purchasing modules within your ERP solution should help facilitate supplier lists, purchasing or sourcing schedules and other variables in the acquisition process.
Review Bundling Strategies
No one wants to be the father of failure. This is one reason why marketing folks are forever trying to preserve or breathe life into loser products. Rather, they will take the “weak sister” and pair it up with other stronger products that people will buy. No one really wants pimentos, but they do want olives. Stuff the pimento into the olive and you’ve got a pimento sale that you would have never had before.
For years, the music business did this with their practice of placing one or two hit recordings on an album containing 10 other more pedestrian selections. Software is another area where less commercially viable products are matched up with killer apps and pulled along by the power of the popular program.
In the physical product world, this happens as well. How much strain do these loser products put on your supply chain? You should endeavor to find out. Making something just to sell it and reduce the profitability of a winner product is nonsensical, even if the marketing genius who is attempting to bury a mistake through bundling is threatened by the exposure.
Again, your ERP, CRM and CPQ systems should all be helpful in reviewing which bundles really enhance a product and which ones just keep a dead guy on life support.
That is simply not a good justification for keeping something around that has little appeal as a product. Useful products with a smaller market that are made more economical by bundling are one thing; junk is quite another.
Dump the junk and stick with building what sells.
[i] 40% of Manufacturers Faced Supply Chain Disruption in Past 12 Months, Material Handling & Logistics, February 16, 2016.
[ii] Robust Strategies for Mitigating Supply Chain Disruption, 6.2 Lead Time Reduction, pg. 43, Christopher S. Tang, January 23, 2007, International Journal of Logistical Research and Applications.
[iii] Robust Strategies for Mitigating Supply Chain Disruption, 5.2 Strategic Stock, pg. 38, Christopher S. Tang, January 23, 2007, International Journal of Logistical Research and Applications.
[iv] Robust Strategies for Mitigating Supply Chain Disruptions, 4.1 Nokia, pg. 37, Christopher S. Tang, January 23, 2007, International Journal of Logistic Research and Applications.