As global supply chains continue to grow in both volume and complexity, so do the challenges and risks. Supply chain disruptions can range from natural disasters and trade disputes to product recalls and lack of automation or collaboration between retailers and suppliers. These disruptions can result in a decline in sales growth and customer satisfaction, and depending on the scale of the disruption, also negatively impact stock returns and company value
“The first half of 2018 saw supply chain disruptions occurring at record numbers, reaching 29%, compared to 25% in 2017 and 19% in 2016.”
Given the potentially severe consequences of supply chain disruptions to an organization, it’s no wonder why substantial resources are expended on risk mitigation tools and strategies. While it’s impossible to ensure a completely predictable supply chain, there are certainly ways to make your supply chain more agile and responsive to quickly handle unforeseen complications.
Here are some common supply chain disruptions and strategies to mitigate the risk to your organization:
1. Natural Disasters
Weather-related events are a major source of supply chain disruption around the world. Natural disasters can disrupt an organization in a number of ways, damaging or destroying inventory and warehouses, blocking transportation routes, and causing power failures and data loss.These kinds of occurrences cannot be entirely avoided, but by building visibility and resiliency into the supply chain, their effects can be minimized. How should you respond before, during, and after a natural disaster?
- Create a recovery team within your organization that will be tasked with responding to a natural event to assess the level of supply chain disruption anticipated and identify the best path to supply chain continuity.
- Perform an audit of current supply chain sources and conduct a risk analysis based on various factors, including geography. This requires in-depth visibility into all sourced material and those companies’ relationships your business depends on.
- Build a contingency plan for your supply chain that includes identifying geographically diverse suppliers and distributors and onboarding that begins in advance of future events.
In one of the largest and most complex automotive recalls in recent history, Takata airbags were recalled due to a faulty inflater that caused some of the airbags to explode violently. What began as a fairly small recall in 2014 snowballed in the following years to include millions of vehicles of more than 19 makes and models, including Ford, Honda, and Toyota. Takata ultimately filed for bankruptcy.
Many attribute the time it took manufacturers to join the recall to an increasingly difficult to track global supply chain.The use of outsourcing manufacturing to a large network of suppliers means that when a part fails, there must be a high level of visibility to quickly identify the flaw, whether it lay in the design, material, or the component itself. It is the onus of the manufacturer to implement supply chain technology capable of tracing products by lot, date, or SKU, and requiring the same of their trading partner community. Doing so will enable companies to accurately pinpoint which products need to be recalled and repaired or disposed of, and which products can stay on the shelves, improving accuracy in the returns process and minimizing overall waste.
“Recalls regularly touch nearly every industry, from consumer products and automobiles to pharmaceuticals. The chances that a recall will hit your supply chain are high, and it’s important to be prepared.”
The speed and efficiency of a recall response can make the difference in restoring the company’s profits, brand and reputation, and mitigating any legal liability. Manual supply chain processes require manual investigation and research when a recall occurs, slowing the reaction time and prolonging the process. Technology such as Radio-Frequency Identification (RFID), Enterprise Resource Planning (ERP), Electronic Data Interchange (EDI), reverse logistics, and transportation technologies can provide the flexibility, accuracy, and visibility to help keep a small-scale recall from turning into a crisis.
Case Study: A prominent medical supplies and health services company implemented DiCentral’s EDI solution with a custom feature that automates the process of assigning lot numbers to each item. In the event of a problem or recall, an alert is issued and the company can locate exactly where each affected item is and remove it in real-time. Previously, this process had been handled manually with spreadsheets, an inefficient method with a much higher margin of error.
3. Trade Conflicts
The US recently placed tariffs on approximately $250 billion of goods made in China as it sought to reduce a massive trade deficit with China amidst claims of unfair trade actions. Chinese authorities responded with a series of their own tariffs, making transporting goods made on mainland China increasingly expensive. As the trade war between the US and China accelerates, many global organizations caught in the crossfire plan to shift portions of their supply chains out of China. This is no small undertaking, and one that has proven unfeasible for some smaller companies that have simply had to suspend operations or close altogether. Due to the global nature of modern commerce, even items that may not include any components from regions involved in trade conflict often still experience a high degree of scrutiny that delays the import/export process and impacts the supply chain.
In a recent interview, Nestor Scherbey, president of Customs Trade and Risk Management Services stated, “A direct result of the current trade war between the US and China is the increased scrutiny of imports from countries that have any type of China connection or origin. Adding to the risk is the fact that the majority of goods manufactured or assembled in the world today don't have a single country of origin.”
To protect yourself from trade disruptions, consider diversifying your trading partner community, including retailers and suppliers in different geographic locations, so that you can shift to other suppliers in the event that a specific country or region experiences a trade disagreement. Prior to onboarding new suppliers, a risk management assessment should be conducted, including financial status and geopolitical risk factors. Integrated supply chain systems that track supplier performance, financial data, and predictive indicators are also an invaluable resource when managing a global trading partner community.
4. Bad Supply Chain Data
Inaccurate or “bad” data may seem like a fairly small problem compared to hurricanes and trade wars, but the consequences of transmitting bad data through the supply chain can be devastating to a supply chain. For example, a local retailer advertised a Black Friday blowout sale of a specific type of television. In preparation for the sale they ordered 2,000 televisions. Unfortunately, the purchase order (PO) was not received by the manufacturer, an oversight that was not caught until days before the sale. Thousands of shoppers descended on the store only to find the item was not available. Customer complaints mounted, with many taking to social media to air their dissatisfaction, prompting the retailer to issue a public apology and extend the sale of televisions another week, costing them a significant amount of revenue.
How could this issue have been avoided? A business rules and exception management tool can be employed to standardize the ordering process between suppliers and retailers. In the above scenario, the retailer should have required an EDI 855 Purchase Order Acknowledgment within 48 hours of the supplier receiving the PO. In the event the acknowledgement did not arrive on the second day, the retailer, utilizing the exception management tool, would be alerted that the PO was not received or transmitted properly and could have reached out to the manufacturer or re-sent the PO.
What makes exception management so powerful is its ability to extract data content from the transaction and react to it in real-time. Data elements from one transaction can be used to perform verification tests on a different transaction. Business rules alerts can be based on timing (e.g. ASN not sent and cancel date is coming up, or PO acknowledgement was not received within 48 hour timeframe for turnaround). Multiple rule instances can be used for escalated alerts (e.g. 24 hours to go, send to buyer; 12 hours to go, send to buyer’s manager; 8 hours to go, send to VP). In the event that potential violations are detected, the transaction is held in a quarantine area where it can be edited before transmission, protecting suppliers from chargebacks and retailers from costly inventory fluctuations caused by inaccurate data.
Addressing Known and Unknown Risks
Most organizations know that they must protect their supply chains from costly disruptions, but the most proactive implement tools and strategies to address both known and unknown risks.To learn more about protecting your supply chain from bad data and potential supply chain errors, join our upcoming webinar, Remedies For Your Unpredictable Supply Chain. We'll explain exactly how DiMetrics (DiCentral’s Business Rules and Exception Management Tool) identifies and quarantines potential business rule violations, issuing alerts so you can find a solution before costly disruptions occur.