In today's global marketplace, supply chain disruptions pose a significant threat to businesses of any size. Risks can arise from increasingly destructive natural disasters, cyber attacks, or geopolitical actions. Unforeseen factors that cannot be controlled could influence the cost of goods, delay or prevent deliveries, and negatively impact the budget of the most well-prepared organization. These tips can help your business identify and prepare for common supply chain disruptions.
Before organizations can successfully mitigate risk, they have to understand it. As
sourcing has become increasingly complex, businesses are pushed by competition to lower costs, meet customer ethical sourcing expectations, and move goods as quickly as possible.
These outside forces put additional pressure on organizations to limit orders to trusted vendors. Supply chains are compressed as a result, which can limit sourcing
flexibility when disaster strikes.
The key to recognizing supply chain threats is to adopt new risk-related key performance indicators (KPIs). To asses the impact of threats, every business should determine:
- Time to Recovery (TTR): How long it will take to recover from a disruption
- Time to Survive (TTS): How long the company can continue to operate after disruption
Calculating these values means understanding the flow of goods from end-to-end to determine just how much product is on hand at any given time. From there, you can estimate how long your business could survive if a shipment (or shipments) did not arrive as scheduled, and make a contingency plan to handle disruption.
Supply chain management is a delicate balance. Too much overstock and your business is wasting money on storage and suffering a higher risk of loss due to spoilage, damage, or aging. Too little, and your TTS is minimal.
Preparing for Common Supply Chain Disruptions
While it's impossible to predict every possible disruption, you can take supply chain risk prevention measures to reduce the impact on your business. Below you will find
three common types of risks and possible solutions.
1. Risk: Natural Disasters and Political Changes
With newscasters throwing around words like "bomb cyclone" and "Snowmageddon", it's no wonder that supply chain managers are worried. As the climate changes, storms are becoming more frequent and more devastating. In the past few years, we've seen wildfires decimate California, flooding all over the country, massive hurricanes, and earthquakes in areas where they never previously occurred.
And it's not just happening here. Typhoons, asphalt-melting temperatures, tidal waves, and other disasters are happening all over the world while business struggles to produce enough food, energy, and clever tee shirts to meet demand.
Political issues may seem like a different subject, but the impact and the solution are the same. What happens to businesses when the president decides to raise tariffs on a critical import? The Cato Institute lists 202 companies significantly impacted by tariffs imposed by President Trump last year. Political influences on pricing can
originate from any country, and happen at any time.
How to Prepare: Broaden your supplier network. Research and vet suppliers in different areas of the country and the world if feasible to be ready to reroute an order from an impending disaster to a supplier outside the impact zone. Bear shipping routes in mind as you form your plan. The production or distribution facility can be wiped out, and so can the roads, rails, ports, and shipping routes.
Once you've identified alternate suppliers in different geographical locations, you can monitor the news in order to be prepared for impending disruption from forces
of nature, culture, or politics, and get ready to change suppliers.
2. Risk: Unreliable Transportation and Delays
A lot can happen between a distribution center and a store. Goods can be stolen or damaged, roads and rails can be damaged, and rerouted traffic can back up, resulting in delayed shipments. With the huge variety of transportation options on the market, businesses are more agile than ever, but may also be at higher risk. Increasing competition drives the cost down, often at the expense of agility—and, as a consequence, reliability.
How to Prepare: Know your transportation partner. Do your homework and choose a company capable of meeting your needs even if one avenue of delivery is disrupted. Ask for an agility plan. If a storm makes railroads impassable, does the company have the capability to pivot to trucks or another method? Choose a logistics company with a game plan and the resources and reputation to back up their service. Then monitor and reassess regularly to make sure the company delivers as contracted.
3. Risk: Price Fluctuations
Geopolitics and unexpected events can make raw materials scarce. And as a result, this can drive prices for those materials up dramatically, which will then impact the
cost of your end products.
One example can be seen in crops facing critical long-term shortages like coffee and chocolate. Prices shoot up as climate change devastates harvests in countries
where the bulk of these crops are grown. And for businesses that rely on
international sourcing for these raw materials, production costs can also rise
as low wage workers gain minimum wage hikes and human rights victories. By
comparison, businesses relying on local sourcing can also experience cost
fluctuations. Outbreaks of food-borne diseases like listeria have contaminated
lettuce crops, and other diseases have infected orange groves.
How to Prepare: Once again, the answer lies in knowledge and data. The ability to analyze trends and predict market fluctuations is invaluable. You can study climate change trends and shifts in labor to prepare for the likely rise and fall of a commodity's price. And this data can help you plot the best strategic times to buy at lower costs.
With crops and other raw materials, businesses will also have to consider factors like the use of best practices to prepare for climate change and outbreaks. Research farming partners to make sure they have implemented good conservation practices to protect the soil and crops, as well good handling practices to help prevent (and control) on-farm food-borne illness.
The Bottom Line
The key to strengthening and protecting your supply chain is business intelligence. At every step of the way, business owners need to stay on top of both industry and market trends, as well as political analysis, to identify common supply chain risks. Data can help predict and prepare for natural disasters, and create backup strategies to resolve supply chain delays and failures. Business owners will also need to take the extra step to make sure that they are working with partners who are implementing best practices to protect the supply chain, and handle common disruptions.