Contingency Planning For The Supply Chain
By Hugo Britt | December 16, 2021
If the past two years have taught us anything, it’s the importance of risk mitigation and contingency planning for the supply chain.
But it’s not just the COVID-19 pandemic giving procurement professionals cause to address supply chain stability and rethink their strategies. In 2021, natural disasters, trade disputes, geopolitical disruption, supplier bankruptcies, material shortages, and fluctuations in consumer demand have all served to knock global supply chains off course.
Four things to consider when it comes to contingency planning for the supply chain
When it comes to future-proofing your organization’s supply chain via robust contingency planning, here are four important factors to consider.
1. Supplier Risk
No two vendors will be exposed to the same risk factors, which is why it’s important to conduct thorough risk assessments for all “mission-critical” suppliers and interrogate their risk mitigation strategies.
For example, suppliers in certain locations are more vulnerable to being impacted by a natural disaster – which would halt production and cause delays – while others are more susceptible to the risk of modern slavery.
Once you understand the kind of disruption a supplier is most likely to face, you can work with them to mitigate that risk or identify alternate suppliers. For example, if you’re concerned that newly proposed tariffs will make it too expensive to buy a critical product component from your supplier in China, you can start making alternate sourcing arrangements.
Implementing a preferred supplier program for your most critical suppliers is a good way to ensure loyalty, reliability, and high-quality service. You’ll build meaningful relationships and work closely with all vendors in this program to plan for everything from product shortages to changes in customer demand.
The first thing to fail following a major supply chain disruption is your organization’s inventory levels. Do you know how much stock you have, where it is, and how long it would last you in the event of shipping delays, border closures, or product shortages?
It’s important to consider how you could ramp up or scale-down production as required. What would you do if consumer demand suddenly skyrocketed and you require a 100% increase on a critical component? Conversely, you don’t want to keep your inventory levels too high in case consumer interest wanes and you’re lumbered with a whole load of expensive and unsellable stock.
In a post-pandemic world, most procurement teams are erring on the side of caution, which means shifting from a just-in-time (JIT) to a just-in-case (JIC) supply chain model. This means having more inventory within close reach and outside high-risk areas.
If your organization has more limited resources, storing excess inventory might not be possible and it’s all the more important to consider alternative options such as near-shoring or re-shoring critical manufacturing processes. Another option is investing in 3D-printing for certain critical product components.
It is of the utmost importance that everything agreed upon during the negotiation phase between buyer and supply is put into writing. This includes everything from outlining expectations for both parties to clauses that will protect your organization in the event of a major supply chain disruption.
Work closely through all documents with your organization’s legal team to be sure that you understand exactly what you are committing to, and have addressed all possible eventualities.
For example, what happens if you or a supplier can no longer fulfill their duties? What conditions will trigger a force majeure? You’ll also need to consider how to fairly assign risk to both parties so neither one feels exploited.
Once you have robust contracts in place, it’s worth carrying out regular contract audits to hold vendors accountable and identify any instances of non-compliance. This can reduce financial risk and make it easier to identify problems before they worsen and cause significant disruption to the supply chain.
4. Logistics Visibility
In March 2021, a 1,300-foot cargo ship – the Ever Given – blocked the Suez Canal for six days. As one of the world’s busiest waterways, the ripple effects were felt through supply chains for weeks, adding additional congestion to ports, rail yards, and distribution centers delaying shipments across the world and in multiple industries.
When it comes to supply chain logistics, gaining total visibility is the only way to mitigate the impact of disruption such as this, as well as border closures and delays or surges in consumer demand that require the shipment of increased inventory.
You’ll need to acquire and analyze a lot of current and historical data, including the size of your fleet, the volume of stock being shipped, where that stock will be at any given time, warehousing and shipping costs, shipping routes, travel times, delivery days, and border requirements and regulations to identify the most high-risk areas within your supply chain and any inefficient processes.
This process can help you to make data-driven supply management decisions. For example, you may choose to lease or rent additional vehicles, change your delivery days to drive efficiencies, or avoid certain ports. If you find your existing processes to be efficient and effective, it’s still important to plan for potential disruptions and consider alternate shipping routes. Today, there is a multitude of supply chain technologies available that can troubleshoot various disruptive scenarios and plan alternate optimal routes.
Need access to more contracts or assistance improving procurement efficiency? Una can help. Contact us to learn more today.