Uncovering the sources of supply disruptions
Reader E.J. writes, "I am in charge of finished goods supply of about 86 stockkeeping units. These products are imported, and I work with facilities across the globe. Supply disruptions occur more or less daily. How can I ensure supply continuity?"
Frequent supply disruptions are challenging and frustrating, and they make it difficult to focus attention where it belongs. In some organizations, disruptions are tolerated, and prices and customer service procedures are shaped around them. Breaking this cycle requires a proactive approach wide in scope. What's the root cause?
Use the five-whys method whenever a disruption occurs. It may reveal one or more supply chain risks as the cause. Identify the risks that are most responsible. Sort them into categories, such as production problems, natural disasters, labor challenges, transportation and logistics delays, currency risks, and the like.
Next, map your supply chain. Even a high-level map is helpful. Overlay the risks and their frequencies and importance. This will help you develop an approach based on the Pareto principle to prioritize suppliers and the most critical risks. Categorize risks and suppliers as A, B, or C. The A risks and suppliers are those that cause 80 percent of disruptions, and the B and C categories represent suppliers and risks of descending importance. Then, concentrate on the A category, and ask yourself:
- How well do you know your A suppliers?
- Where do you stand with them?
- How critical are you to their businesses?
- How much information sharing occurs between you and them?
Now, it's time to make improvements. Start by reviewing your supplier contracts. See if there are any key performance indicators you can better enforce. Set up meetings with the supplier to work out improvements through which both organizations benefit—in relationships, information flow, performance, and other areas.
If a supplier does not regard you as important, look for allies. For example, while supply chain risk management is a fairly new discipline, your corporation may have someone in this function. Connect with this person or group, and share your challenges. They might welcome finding a like-minded professional with important global market data to share. Or perhaps the supplier also has a supply chain risk function to connect with. Past the quick fix
As this work is underway, also consider developing longer-term solutions. Target your A suppliers and risks in the following ways.
Investigate. Look for early warning signs of disruption. Figure out with your team and downstream partners how to create alternatives to disruptions—for example, carrying more safety stock or making substitute products. Investigate bottlenecks in your own operations, and improve your disruption discovery and response procedures.
Develop proactive and reactive countermeasures. Proactive risks are those that can be forecast. Many examples of this type of risk will appear on your supply chain risk map. For each proactive risk, create a profile that determines its characteristics—for example, its frequency, under what conditions it occurs, how often it leads to disruption, what type of disruption it causes, and how much advance warning is available before disruption. Using the risk profile, establish procedures to minimize the disruption or prevent it altogether. This method may reveal dependencies in your supply chain, whether on a single supplier or a component with unreliable supply.
Reactive risks are those that occur without warning. Such risks require supply chain flexibility and resilience, rapid detection, evaluation, and response. As you continue to hone your supply chain risk management skills, you will be able to detect potential reactive risks and address them before an event occurs. Sensitivity to warning signs will become a valuable asset. Learning about the risk and its causes can prevent being surprised again.
Focus on supply chain strategy. When examining your customers, products, demand, and available resources, does your supply chain reflect an optimal strategy and design? One example of a less-than-ideal situation is when a company invests in supply chain speed and flexibility, but its customers and markets value reduced final costs. Determine how an optimal trade-off of capability, expense, quality, and location would change your supply chain. Over time, develop the budget and priorities to improve proactive and reactive risks. Work with senior management to ease supply chain constraints and bottlenecks. This may involve enhancing logistics and distribution facilities. Additional measures include increasing data flow, such as with radio frequency identification tags or other technologies; strengthening supplier relationships by improving formal and informal agreements that reward supplier performance; and pioneering products that eliminate the causes and risk of disruptions.
Demonstrate to senior management the costs, causes, and competitive disadvantages of supply disruptions, and find a solution that aligns with the organization's strategy, long-term budget planning, and goals. There are costs associated with each of the changes to your supply chain. But remember: They are offset by the time, effort, and money that otherwise would be lost to continuing supply disruptions.
Jonathan Thatcher, CSCP, is director of research for the APICS professional development division. He may be contacted at firstname.lastname@example.org