How to protect yourself against disruption of the supply chain?
Recent industry trends such as outsourcing, offshoring to low-cost countries, and lean manufacturing, developments that aim to reduce logistics costs, have significantly increased the level of risk faced by supply chain companies are exposed. Thus, as industrial transfers and the globalization of production intensify, these movements lead to greater geographic diversity within logistics chains, which are, in fact, more exposed to a multitude of risks of natural or human origin.
In addition, lean manufacturing, which aims to minimize inventory levels in the supply chain, makes the task of companies more difficult when they have to react to disruptions in their supplies. According to a number of recent surveys, risk management has thus become the first concern of business leaders. This increase in the level of risk requires industrial and logistics managers to systematically implement solutions that allow them to respond to both extreme risks such as hurricanes, epidemics, earthquakes, coronavirus pandemic, or even port closings and also operational risks. Here, we will discuss how to protect against disruption of the supply chain.
Strategies protect against disruption of the supply chain
There are six main methods that companies can use to reduce risks in their supply chain, including the risks associated with major disasters. They can be implemented in each supply chain depend on the nature of the supply chain and the types of risks.
Detection and response
Faster detection and reaction times can help companies overcome unforeseen problems in their supply chain. The ability to process information quickly, for example, to design a supplier replacement plan or respond to a production problem can become a matter of survival. Some case studies clearly show that the inability of some companies to react to unexpected events in their supply chain forced them to leave a market.
The first step in managing supply chain disruptions is to maintain a higher level of inventory of critical components or finished products than is operationally necessary to provide a buffer against potential disruptions. The size of the inventory must be balanced according to the frequency and duration of the event, since the company will have to bear the costs of maintaining high inventory levels.
Also, it is important to consider location and replenishment strategy. The company must maintain its stockpile inventory in a location isolated from the risk it faces and develop a reflection procedure to replenish inventories so that the business is not exposed to other risk events while recovering.
Adaptability and flexibility
It is undoubtedly the most difficult risk management method to implement effectively. It requires that all links in the logistics chain share the same culture, works collectively to achieve the same objectives, and thus share the gains and savings generated. In fact, this method creates a community of partner actors within the logistics chain that adapts and reorganizes to react as best as possible to the unexpected crisis.
The challenge here is to design a supply chain that can effectively withstand unexpected events without causing a substantial increase in costs in return. It requires an in-depth study of the compromises to be made in terms of investments to set up the appropriate degree of redundancy within the logistics chain.
Develop Backup Suppliers
Develop backup suppliers to protect against the supply chain disrupts. The companies should identify the supplier and make an agreement for backup production capacity during the supply chain disruption. It is a good strategy for the potential need to combat a disruptive event like coronavirus pandemic.
Manage Product Demand
It is another strategy that supply managers can use to protect against the disruption of the supply chain. There are two subcategories when it comes to managing product demand i.e., Switching and Rationing. The switching strategy is achieved through discounts and incentives. This way, companies encourage customers to buy their products that are not supply reserved. On the other hand, the rationing strategy is all about taking steps by the companies to distribute the limited supply to their important customers first.
As you can see, there are different methods in order to protect yourself against disruption of the supply chain. Coronavirus is putting global logistics networks to the test, due to the high demand for sanitary and basic necessity products and the transport restrictions imposed by governments to try to reduce the number of infections.
The best solution to face this type of events is to have a specialist Fourth Party Logistics Service Provider. With its 4PL concepts, Swiss Air & Road Cargo AG brings together the best and most suitable logistics parties and integrates the logistics services into a total solution.