Business

What to Do When You Have a Supply Chain Disruption

Supply chain disruptions have been widespread in 2020, leaving virtually no industry unscathed. Among the many lessons learned this year, though, are best practices for dealing with these disruptions, keeping your business moving forward and your customers happy.

So what should you do when your supply chain is interrupted? As with many emergencies, you need to address both the short and long term effects of the disruption. Even the most prepared organization can face challenges in times like these, but when handled properly, the effects will be short-lived — and your business may even come out stronger.

Immediate Response Tactics for Supply Chain Problems

When the coronavirus pandemic first took hold in March 2020, empty shelves in supermarkets and big box stores were both alarming and baffling to customers. How could this happen?

Several factors led to the shortages, which in some cases are still ongoing. For starters, unprecedented consumer demand for a wide variety of products depleted inventory. From toilet paper and cleaning products to flour, yeast, pasta, and other shelf staples, consumer purchasing patterns changed drastically, and with little warning. Combined with shutdowns and business closures, shifts brought on by the need to physically distance and sanitize work areas, and unprecedented demand on transportation and logistics, manufacturers were caught off guard.

Unfortunately, this is a common theme when supply chains are disrupted. The fact is, many of the most effective risk management and mitigation tactics need to take place before a disruption occurs — not in the middle of it. And given that most companies are under pressure to reduce costs and improve efficiency, the potential for serious issues when things go wrong is always there. In short, it’s difficult, or even impossible, to find backup suppliers, redesign products or processes, and introduce new technologies while you are in the midst of a crisis.

That’s when you need to implement your short term response plan, which begins with communication. As part of your response plan, you need to develop an emergency management team, and a communication strategy that ensures your company speaks with one voice to all stakeholders, including customers, employees, shareholders, analysts, and your suppliers. This means being transparent about what the supply disruption means, and how it affects your customers. For example, does low inventory mean backorders and quantity limits? Will you have shipping delays? Being upfront and honest will reduce the damage, and encourage your customers to be more understanding.

The next part of your response should be to evaluate your inventory, and evaluate the critical components of your supply chain to get a sense of how the disruption will affect everything else, and where you need to focus your attention. Using a third party risk management tool can help you make these decisions, as well as identify potential alternatives for critical parts and functions.

Preparing for Future Disruptions

The companies that most effectively weather supply chain disruptions are those that learn from the experience and use it to make changes to avoid future problems. Although COVID-19, for example, has been particularly challenging, businesses cannot afford to sit back and assume (or hope) that something similar will never happen again.

Using technology, companies can keep an eye on the risks to their supply chain, and develop contingencies in advance of an actual problem. This includes mapping your supply chain for visibility, and in some cases, changing your contracting procedures. Mapping your supply chain so you know exactly where all of your materials are coming from, and evaluating how critical each part is and your options should something go wrong is key to a secure supply line. When writing new contracts with suppliers, include language requiring suppliers to participate in these mapping efforts each year.

In addition to mapping, supplier contracts should also include provisions related to disruptions that can help you navigate out of the crisis, including expectations related to recovery times and methods. Consider including force majeure clauses to excuse one or both parties from their obligations when disruptions occur beyond their control — like the coronavirus pandemic. Force majeure clauses can clear the path to using alternative suppliers when necessary, reducing disruptions.

Once the supply chain disruption is under control, the primary focus of your procurement team should be on preventing future disruptions. This way, you won’t be left struggling to find solutions on the fly, and will ensure the long term success of your business.

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