Troublesome congestion at West Coast ports in February is still affecting the US economy and expected to cost as much as 7 billion dollars to the retail industry this year. Although this was a major supply chain disruption, it’s not the only costly shipping disruption that has occurred recently. Obvious solutions like increased inventory and/or additional suppliers mighthelp, but these solutions negatively impact cost efficiency. Successful risk management becomes a tradeoff between reasonable supply chain reconfiguration and strategic acceptance of additional costs.
When facing supply chain disruptions, follow these 7 steps:
- Perform a complete analysis of the situation and review alternative ways of keeping the supply chain performing. It’s clear that opting for a different transportation mode could be more expensive. For example, air freight transportation instead of sea bound routes will likely add significant costs. But, understand that losing customers due to product deficit will cost even more. Be educated on the exact costs associated with alternative transportation to make informed decisions.
- Uncover short-term needs: transfer cargo to other ports or routes or use air transport for urgent orders.
- Communicate with all suppliers and carriers. With communication, shippers (and receivers) can better forecast what freight is coming, how the company will be impacted, how long a backlog is expected, and what partners are able to operate.
- Define alternative transportation plans both for supplied parts and finished products. This can also mean seeking new carriers or partnering with a 3PL provider.
- Evaluate each supplier: are there alternative suppliers for the raw material, how long will it take to change suppliers, how much will it affect cost, are there alternative raw materials.
- Establish inventory visibility: where and how many items are located in your supply chain, how easily can they be transported and repositioned. A well-managed TMS would be valuable here.
- Set up a detailed list of external factors and risk that could cause further supply chain disruptions. Determine any weak spot in you supply chain. Create a strategic supply chain design that is optimally protected against disruptions.
For a long-term strategy, shippers can reduce supply chain breakability, using one of two redesigns:
- Segment your supply chain. A flexible supply chain can help you avoid risks with a single supplier, production line, or transportation route. Note: segmentation of facilities is more suitable for larger companies with a very high volume of production.
- Regionalize your supply chain. If your company depends heavily on a global supply chain, natural disasters and geopolitical conflicts could impact its performance quickly and significantly. To avoid this, many companies choose regional supply chains and local sourcing and distribution, limiting disruption risks to one region.
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