May 25, 2021
Has your supply chain missed the boat?
Best practices to optimize your supply chain during uncertain times.
Proactively reviewing supply chain practices will help inventory planners confidently plan, manage and optimize inventory during challenging circumstances.
While disruption to the supply chain is not entirely new, the last twelve months have globally presented many complex business challenges. Each challenge has created a domino effect on intricate logistics and supply chain processes, making it difficult for demand planners to forecast inventory to meet customer demand confidently.
Weekly challenges make supply chains volatile and there is a lot happening right now.
According to Ship Technology, “Freight shipping has found itself in a unique situation where unforeseen events have left a global shortage of containers, which has had a domino effect down the supply chain, disrupting global trade.” They continue, “Shipping companies began reducing the number of cargo ships that were being sent out. This not only stopped the usual flow of imported and exported goods but also saw empty containers not being collected.”
Another event, such as the Colonial Pipeline ransomware attack, resulted in the majority of the 5,500-mile pipeline, which supplies half of the US East Coast’s fuel number of days, creating an instant backlog across their supply chain.
These external events create one big challenge: costly, longer lead times in receiving supply, offering no certainty to plan your procurement process effectively.
Apart from longer lead times and a diminishing supply of certain raw materials, industries also face an increase in the costs of raw materials, transportation, and a scarcity of certain metals.
According to insights from MetalMinder, “raw material shortages – for steel, aluminum or other metals — continues. For some sectors, those accompany parallel shortages in materials like resins and in specific components, like semiconductors. Consumers are trying to judge how elevated prices and material shortages are likely to play out over the second half of the year. They are struggling to see how much material shortages will be counterbalanced by a slowdown in demand as a result of shortages in other materials.”
Businesses have to review their manufacturing, transportation, and warehouse networks and invest in more safety stock to ensure they have enough supply to meet demand.
With the continued sense of uncertainty, two facts remain constant:
- Disruption is not entirely new to supply chains and will, unfortunately, continue.
- Your business needs to operate still and serve its customers.
Has your business experienced challenges due to the global pandemic, natural disasters, or the effects of political trade wars? It’s essential to note the learnings, put measures in place by following best practices below, and safeguard your processes as much as you can to strengthen your supply chain as you move forward.
Ask yourself these two questions:
- Is your supply chain set up to help serve your customers?
- How can your inventory data help you plan more efficiently with your suppliers?
Let's explore these best practices to help you develop a resilient supply chain and make the right inventory decisions to support your business’s objectives.
Five best practices to optimize your supply chain
1) Review your current supply chain processes to mitigate potential risks.
Analyze your supplier data, make the necessary changes, and then implement them across your supply chain.
Having that granular insight into how your supply chain ecosystem is vital, from placing the first purchase order through to delivery to your customer, will help you plan around problem areas and identify opportunities for change.
Review each aspect of your supply chain and identify potential risk areas that can disrupt your supply journey.
- Create an overview of your supplier network taking note of their manufacturing and distribution locations.
- Review the readiness of your suppliers and what contingency measures they have in place when they can’t deliver.
- Understand the flow of the goods and the logistics involved. Often a supplier will use more than one transport route. How will that affect lead times and cost?
- Identify where you have experienced delays in shipping, manufacturing, or experienced shortages of certain materials.
- Find out what security measures your suppliers have in place to prevent cyberattacks. According to Supply Management, the media outlet of CIPS, “supply chain attacks rose by 42% in the first quarter of 2021 in the US, impacting up to seven million people, according to research.”
As new events emerge, you may need to perform regular reviews of your supply chain. In a recent article in the online platform, SupplyChainBrain, “review your strategies regularly, to learn what works and what needs to be improved.”2) Adjust your inventory data to help with your demand planning.
It's safe to say you can't rely on last year’s data to help with your forecasting as that data is not a realistic representation of your inventory flow as a result of disruptions caused by the global pandemic. To help remain flexible in your demand planning, you need to select data from previous months that you feel best represents your current situation and then use that information to help with your demand planning. You need to be mindful about shifting through past data manually, which can be time-consuming and lead to errors. With an inventory management software solution, you can work smarter to select alternative months that are better suitable for your demand planning.
3) Increase communications with your suppliers and customers for real-time market intel.
If you don't ask, you won't know! Developing a close relationship with your suppliers can reduce lead times on critical items. Invest the time in developing a solid relationship with your suppliers, your supplier’s suppliers, and your customers. Staying connected and knowing what your suppliers are experiencing, whether their order availability, reliability of delivery times, or their future demands, will help you adapt your planning. As soon as you receive feedback, you can adjust your inventory lead time and update your customers directly so they can also plan accordingly.
4) Source alternative suppliers to deliver inventory on time.
And use them! Keep your selection of suppliers open by networking and building solid relationships with alternative suppliers. Stay up-to-date with their terms and conditions, processes, and new product lines. If you have a bad experience with your regular supplier or have delays, you will have access to an alternative supplier who already knows and trusts you.
5) Manage your inventory effectively to help plan for unexpected events.
Classifying your inventory allows you to focus on 20% of the stock items that give you 80% of your sales.
- The first step is to identify your obsolete items and non-stocked items and then leaving you to further classify stocked items according to value and velocity. This process will help you understand the movement of your inventory and how to prioritize the most essential and fast-moving items that drive big profit.
- Knowing who your inventory “movers and shakers” are, you can immediately review the performance of those suppliers and evaluate if you will be able to meet demand.
Safety Stock can be your inventory lifeline, within reason.
- Define your safety stock requirements. Once you have classified your inventory and better understand your sales and supplier performance, you can now focus on the stock quantities you need to keep as insurance or safety stock. Your safety stock is there to protect you when your supplier lets you down or when your demand increases. Measure, and report monthly on the above factors. Remember, you will see improvement in the aspects you measure, and that visibility will help your team focus on the correct elements of your inventory.
- Re-evaluate your safety stock. If you don't use your safety stock, you are holding too much stock, and you are wasting working capital for your business. Continuously re-evaluate your safety stock levels and parameters and adjust where needed.
Remember, why retain inventory that you know you won't sell? If you eliminate non-saleable products, you leave space and working capital for the inventory you can sell.
Your supply chain solution: Be prepared with accurate data to minimize your risk.
To remain competitive today, you need visibility of how your suppliers perform to provide the highest possible level of service to your customers.
Using accurate information about your suppliers, you can determine who delivers stock to you on time and in full. Having this visibility will help you plan and invest in the right amount of inventory while factoring in a cost-effective amount of safety stock.
Discover how NETSTOCK can help you determine your key performing suppliers, order the right amount of safety stock and help lower your inventory costs:
Written by The Inventory Mentor
The Inventory Mentor provides thought leadership insights and industry trends for the supply chain industry.