4 Key Steps To Mitigate Supply Chain Disruptions

Supply chain disruption is a major challenge for a variety of industries, from manufacturing and technology to healthcare and retail. 

In recent years, international trade has been characterized by disrupted supply chains. 

For this reason, more and more companies recognize that they need to increase control over their supply chain to gain and retain a competitive advantage. 57% of companies are in the process of reviewing and improving their supply chain management strategy to strengthen their business. 

What Is Supply Chain Disruption?

Supply chain disruption occurs when regional or international events or decisions negatively impact the supply chain, causing delays or interruptions in the delivery and production of goods. 

Although it is not entirely to blame for supply chain disruption, the COVID-19 pandemic has exacerbated the problem and highlighted some of the inherent weaknesses of modern globalized supply chains.

The big question is – how can manufacturing companies mitigate the risk of supply chain disruption, while remaining competitive in the brave new post-COVID world? 

The Impact of Supply Chain Disruption

The recent destabilization of the global economy has created a boiling pot of increased demand (made worse by panic buying), trade limitations and sanctions, and factory shutdowns. Soaring freight costs and 'just-in-time' inventory systems are also adding to supply chain woes.

For these reasons, supply chain disruption is on the increase, with more than 11,000 occurrences worldwide in 2021, up from 6,192 in 2020, and less than 4,000 the year before.

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Diagram: Number of supply chain disruptions worldwide from 2019 to 2021 (source: https://www.statista.com/statistics/1267082/supply-chain-disruptions-worldwide/)

Supply chain disruptions can have serious ramifications, ranging from lost profits and reduced market share to customer dissatisfaction and decreased competitiveness. Disruptions are most commonly caused by sudden changes in demand, supply shortages, labor disputes, natural disasters, and political instability.

Supply chain disruption can cause the following issues for manufacturers:

• Supply shortages – Components and materials are often sourced internationally, which means that disruptions to global trade can prevent normal production operations.
• Product substitutions – Due to supply shortages, manufacturers may find that they need to use substitute components, which may affect end products. Some manufacturers are forced to go back to the drawing board and redesign products to deal with supply chain disruption.
• Managing change – Due to supply shortages and product substitutions, change management is more important than ever. Without rigorous change management processes in place, a substituted product that is slow to get approval may cause unnecessary machine downtime and unfulfilled orders.

As you can imagine, the financial and reputational consequences of disrupted supply chains can be severe. To survive in the modern age, companies must be geared up to identify supply chain issues quickly and respond to them with joined-up strategies that mitigate the negative impact.

How To Identify Supply Chain Weak Points

Step 1 – Carry out a supply chain audit

A supply chain audit should include physical and administrative supply chain activities. The main areas to take into account are inventory management, procurement, order processing, payment terms, production scheduling, logistics, and customer service. Once the key processes are identified, companies can examine how well they work together and pinpoint any discrepancies that may hold up operations.

Step 2 – Perform gap analysis

Gap analysis is a useful tool that examines company objectives and compares them with current performance levels. Gap analysis enables businesses to track progress over time by assessing KPIs such as productivity, cost efficiency, and quality assurance. It’s a good idea to benchmark performance against competitors and industry averages to identify areas where improvements can be made. Operational and process areas that don’t reach the expected targets may indicate supply chain weaknesses and further investigation can be done to pinpoint the problems. 

Step 3 – Implement smart technology

Smart technology helps businesses to streamline their processes, gain a competitive edge, and strengthen weak points in the supply chain. For example, automated production ordering systems can help to reduce errors and increase delivery speed. Other smart solutions such as inventory management software and predictive analytics can help to monitor customer demand and enable more accurate forecasting of orders ahead of time, thus ensuring optimal stock levels without excess inventory. Smart systems can also help to improve change management procedures, which is vital during times of supply chain turbulence.

Step 4 – Monitor and review supply chain strategy

Above all else, it’s critical that businesses review their supply chain strategies periodically. Supply chain weak points may change over time and it is important to stay on top of the challenges. Manufacturing businesses would do well to pay particular attention to production and inventory management, in order to remain flexible and agile in an ever-evolving marketplace. Again, smart technology that leverages data and enables more precise KPI management is the key to successfully identifying strategy adjustments.

Key Takeaways

• Supply chain disruption is a major and growing challenge for manufacturing, causing delays or interruptions in the delivery and production of goods.
• The COVID-19 pandemic has exacerbated the problem and highlighted some of the weaknesses in modern globalized supply chains. 
• Companies should take steps to identify supply chain issues quickly and respond with strategies that mitigate the negative effects. 
• Manufacturing businesses can take the following steps to reduce the impact of supply chain disruption: 
• Carry out a supply chain audit 
• Perform gap analysis
• Implement smart technology solutions (such as automated ordering systems software and inventory management systems) 
• Periodically monitor supply chain management strategy.

O3ai Smart has a range of smart manufacturing modules that can help you to take control of and monitor your supply chain more effectively, including automated production ordering, inventory management, and KPI management. To find out more contact us today.