5 Steps To Protect Your Business From Supply Chain Disruptions
What supply chain manager doesn’t dread getting the news that the goods are not
going to show up at the dock on time? And for some, a shipment that’s merely late but does
eventually show up is good news. During the Covid-19 pandemic, many shipments simply
never showed up at all, leaving businesses scrambling to fill empty orders.
Case in point is the auto industry, crippled by the lack of computer chips due to supply
chain issues, which resulted in decreased automobile production, increased used car prices,
and numerous lost customers. News headlines reported things like “acute shortages of
supplies” and “global supply chain disruptions” that led to “companies from Apple to
Nintendo announcing shipping and manufacturing delays.” The truth is, our supply
chains are critical infrastructure, and privately held mid-sized firms are often the most
affected by disruptions to it.
While most of us may be slowly waking up and getting back to the real world, returning
to the office or using up the last of our emergency government-issued benefits, business
logisticians and senior business leaders were not allowed to be asleep at the wheel the past
year. Ideally, your company had a strong contingency plan in place to ensure your
operations could continue.
Currently a quick look at online job board Indeed indicates over 500 openings
for overseas supply chain management positions. Where are you in terms of access to your
overseas partners? Can you better manage your supply chain or materials and components
so that your business is not significantly affected by future shortages?
Computer chip shortage
One big challenge every business selling more complex tech goods will now face is the
looming computer chip shortage. Most computer chips are manufactured in Taiwan, and
starting in late December 2020, a combination of political turmoil and rising Covid-19 case
counts resulted in disruptions to the output of Taiwan chip manufacturers.
If you cannot source computer chips for your products, you will need to figure out
alternative interim revenue streams and tighten operating expense controls. The good news
is, you may be able to raise your prices with little or no competitor threat.Food industry
supply chains has experienced disruptions as well. Initial consumer shelf shortages in 2020
were the result of many consumers wrongly believing a food production crisis was
imminent, and buying up everything they could. Over the past year, however,
productionparticularly production targeting restaurants diminished due to reduced demand.
With states now reopening, people are flocking to restaurants again, and most suppliers
did not anticipate how rapidly customers would return. This has led to restaurant supply
chain disruptions, from chicken parts to restaurant workers. Wages for restaurant workers
are rising due to worker “return” shortages, caused in some cases by employees collecting
unemployment benefits that may be higher than their previous wages, or else due to
delayed re-openings for daycares and schools, which have forced many parents to stay
home and care for children instead of returning to work. nd as an example of how
interconnected everything is in business today, the restaurant industry is also being harmed
by the computer chip shortage. In addition, rising gasoline prices have resulted in increased
transportation costs (refrigeration truck pricing has risen over 20% from February to May),
leading to increased food prices.
It’s clear that resilient supply chains are critical to your business. While the health and
stability of supply chains are out of your control, there are some things your business can do
to protect itself against the fallout from supply chain disruption:
5 steps to protect against supply chain disruptions
1. Invest in the right technology
Within your secure and up-to-date digital network, you need integrated data from
customers, sales, suppliers, and producers through “state of the art” inventory management
systems connecting you to your suppliers, your production facilities, your warehouses, and
your sales organization.
Invest in inventory management software that can provide real-time, detailed visibility
into inventory control and supply chain management, including inventory levels, stock on
order, and supplier on-time performance. Knowing the inventory levels at your vendors and
raw materials at your suppliers will help you avoid volatility in your supply chain
2. Diversify suppliers and manufacturing partners
Do not count on environmental, social, and political (ESP) stability. Follow your business
instincts, not a simplistic, cost-focused software algorithm. Case in point is the political and
economic issues between China and the United States, which have led many large
manufacturers to use multiple suppliers even at marginally higher costs to avoid losing
business and customers from potential supply chain disruptions.
3. Incorporate risk management into your supply chain management
Supply chain management is not just the sourcing of raw materials. It involves the end-
to-end flow of goods and services, and includes all processes that transform raw materials
into final products. It involves the active streamlining of a business's supply-side activities to
maximize customer value and gain a competitive advantage in the marketplace. Make sure
you understand where you might have supply chain disruption that could affect product
quality, pricing, and availability.
4. Create a procure to pay purchasing system
Many functions in a business are not well integrated. Excel spreadsheets and manual
processes are still common in many middle-market businesses. Procure-to-pay is a business
process cycle spanning from procurement functions for goods and services needed, to
receiving procedures (including verification), to accounts payable and accounting functions.
Payables duties include vendor invoice matching to purchase orders and receiving reports,
getting invoice approvals, paying approved invoices, recording transactions, and generating
reports.
5. Focus on the basics cash is king
While thinking about supply chains, think about the supply chain involved with
your cash flow. Do you conduct effective cash-flow forecasting? For example, how long can
you last if there is a disruption and you cannot move your product? Is “just in time”
inventory of materials and parts still a dependable theory? Do you have a line of credit or
documents prepared to obtain a short-term loan if necessary to secure backup inventory?
What is the cost of lost customers from not being able to sell your product due to
shortages?
Good cash management is your ace in the hole, especially if your competitors lack this
expertise. Successful businesses practice effective cash conversion cycle (CCC) management.
CCC is a business measurement that expresses the time (measured in days) it takes for a
company to convert its investments in inventory and other resources into cash flows from
sales. Essentially, if your cash is tied up more days in inventory and raw materials than in
days to collect on sales, then you could be “growing your company into the ground.” The
more you grow, the more cash you will need from your bank.
Coordination and cooperation are critical to avoid supply chain disruptions
Effective management of your supply chain provides several opportunities for your
company to improve your profit margins and retain customers, but coordination and
cooperation with all contributors to your supply chain is critical. Genuine engagement with
those contributors is a win-win for manufactures and supply chain partners. Know this: your
suppliers are ready (and in many cases eager) for change with you this is a margin-increasing
opportunity for them, too.
