Mitigating Supply Chain Disruptions: A Guide for Business Success

When a supply chain is operating efficiently and effectively, it's almost like magic. Customers find what they need at the store, never worrying about whether or not the items will be in stock. They can order just about anything online and receive it a couple of days later. No one really thinks about how those items get to the store or directly to their front porch. That is, until the supply chain no longer works the way it should.

While no company can completely eliminate supply chain disruptions, they can take steps to mitigate them. As the recent supply chain issues have illustrated, businesses have to be prepared for potential large-scale disruptions that can severely impact their bottom line. This guide will help you mitigate future supply chain disruptions to minimize their crippling effects on your business.

Defining Supply Chain Disruption

A supply chain is simply a network of companies, people, and other entities that move products from manufacturers and suppliers to end customers. Supply chains vary in length and connections depending on the distance a product must travel and the number of intermediaries involved. A supply chain can be disrupted at any point, and any sudden change or crisis can cause a disruption.

Tier 3 suppliers are the first link in the supply chain, as they provide raw materials to tier 2 suppliers, which produce and supply parts to tier 1 suppliers. Tier 1 suppliers assemble the parts from the tier 2 suppliers to deliver to the original equipment manufacturers or OEMs. From there, the OEMs can either market and distribute the products themselves or use a network of distributors to do it for them.

Not all items or industries have all tiers in a full supply chain. Some chains are much simpler, while others can be extremely complex, especially when multiple suppliers are involved. For instance, a motor vehicle consists of hundreds of parts sourced from dozens of tier 1 suppliers, and if any single part is missing, the final product can't be completed.

Disruptions can be even more severe if there's only one supplier of a part or raw material, and that supplier is unable to meet demand. This recently happened on a massive scale when computer chips for motor vehicles were in short supply because only a few manufacturers produced them. Dealerships had to wait for months to get their orders fulfilled.

Major Types of Supply Chain Disruptions

As previously mentioned, any sudden change can lead to a supply chain disruption, and usually, these disruptions are fairly minor. For example, a customer might have to wait a few extra days for a package if weather is causing cargo planes to be delayed at airports. However, severe disruptions can wreak havoc on supply chains and completely upend operations across the network. Here's a look at five major types of supply chain disruptions.

1. Pandemics

Most of us are intimately familiar with pandemic-related supply chain disruptions because we're still experiencing them to some degree. A pandemic makes people sick, often too sick to work, and if too many people are sick, companies have to shut down operations or sharply scale them back. In the case of the COVID-19 pandemic, governments mandated shutdowns, which meant that vital links in the supply chain were completely broken. These broken links then caused other disruptions down the chain.

When demand for products remains the same or even increases during a pandemic, orders become backlogged, and even when operations resume, companies can't fill them fast enough. Staffing shortages may occur due to sickness or layoffs, further limiting production capacity. Meanwhile, new orders continue to come in, exacerbating the problem.

2. Natural Disasters

Natural disasters like hurricanes, tornadoes, floods, or wildfires can impact the supply chain when businesses are shut down until the danger passes or when they have been damaged during the event. While most natural disasters are localized, even a small link in a supply chain can have major consequences down the line. Large-scale disasters like the 2011 tsunami in Japan can be catastrophic, particularly when businesses responsible for the majority of a supply or product are shut down, even temporarily.

3. Transportation Delays

Weather is the most common cause of transportation delays that result in supply chain disruptions, but other factors can also lead to delays. Employee shortages, equipment breakdowns, and customs issues can all cause holdups with trucks, planes, trains, and ships. When there are no barriers to transporting goods, the process is finely tuned to ensure there is no congestion at distribution points. However, when a disruption occurs, products may have to sit in a warehouse for several days or weeks before the backups can be resolved.

4. Price Fluctuations

Whenever prices change, the potential to disrupt the supply chain is present. Companies have to make decisions that could result in changing suppliers, raising their own prices, or absorbing the costs themselves. Usually, these disruptions are minor because companies can continue operating with their current suppliers until they make a final decision. However, occasionally, prices change without notice, and companies can't afford to place their orders until they make the switch.

Price fluctuations are particularly difficult for businesses dealing in commodities such as crude oil because prices are never stable. If a company incorrectly predicts the costs of their supplies, they may have to shut down parts of their supply chain until they can afford to continue operations. If a company goes out of business due to price fluctuations, the supply chain will be disrupted until a new company can take its place.

5. Cyber Attacks

Cyber attacks are a relatively new type of supply chain disruption and are on the rise. Regardless of the size of the business, cyber attacks are a threat that must be taken seriously. Since technology is such a major part of business operations these days, if it doesn't work properly, entire businesses can shut down. Sometimes, hackers even hold companies' access to their systems hostage until they get paid. Depending on the willingness of the company to pay, a disruption can last for weeks or months on end.

At one point, only large companies were worried about cyber attacks, but hackers have expanded their reach to companies of all sizes, knowing that any disruption in their business can cripple their operations and those of their network partners. Hackers are targeting pivotal supply chain companies to increase their odds of collecting ransom.

Tips for Mitigating Supply Chain Disruptions

If your company has come out of the most recent pandemic-related supply chain disruptions relatively unscathed, consider yourself lucky. Many companies did not make it, and the main reason is that they weren't prepared for the situation. You now have the opportunity to prepare your business for potential future supply chain disruptions to mitigate their impact.

The best move against supply chain disruptions is to have a good defense, which starts by setting your company up for success in case one occurs. You won't have much advance notice, if any, of the next disruption, so you can't put this off. The following tips will help you create a strategy for managing and mitigating supply chain disruptions.

1. Establish an Emergency Backup Plan for Your Supply Chain

Whenever you create an emergency plan, consider the worst-case scenario and prepare for that. What would happen if your suppliers all shut down because of another pandemic? What if a natural disaster prevented your suppliers from shipping your products? What if a terrorist attack on the other side of the world cut off the main source for a component you need?

The answers to these questions will assist you in determining your backup plan. For instance, you might diversify your suppliers to ensure that you have access to at least one if another supplier is unable to fill your orders. Make sure you can access various suppliers at any given time.

Of course, with a pandemic, there's no guarantee that even one of your regular suppliers will be available, so other contingencies must be considered. Set aside an emergency budget to use in case of disruptions so that you can access other, more expensive suppliers if necessary. This temporary solution will keep your business running until the crisis ends.

2. Stockpile Inventory

The best way to ensure your supplies don't dry up during an emergency is to have extras on hand. If you're a tier 2 supplier, you may need to stockpile raw materials to produce your products. If you're a tier 3 supplier, you may need to store additional parts in a warehouse or other storage facility. Tier 3 suppliers often rely on natural resources and may not have the ability to stockpile inventory.

Dropshippers who do not normally keep inventory on hand may want to consider other business models because they don't have control over a major part of the supply chain—the actual product delivery. Dropshipping, while convenient, is one of the most vulnerable positions to supply chain disruptions, particularly worldwide disruptions. They are at the mercy of others who hold inventory and may not have thought ahead to mitigate disruptions.

3. Audit Your Current Supply Chain

After the pandemic, you may already know where the weaknesses are in your supply chain. If not, it's time to audit your supply chain to identify the parts that are most likely to break down during a future disruption. Perhaps you don't offer enough delivery options to give customers alternate ways of getting their products if one service goes down. Maybe you need to add another transportation company to your supply chain to bolster your delivery times.

No matter where your supply chain weaknesses lie, you can come up with a plan to strengthen them during a period of relative stability instead of trying to fix them during a crisis. Several supply chain audit checklists are available online to help you determine where your weaknesses are.

It's also a good idea to hire an outside company to conduct your supply chain audit. Sometimes, company owners and operators are too close to the situation to see the holes in their processes. A third-party auditor can make objective recommendations to improve your odds of keeping your supply chain intact during a disruption.

4. Identify Alternative Suppliers

As mentioned, part of an emergency supply chain disruption plan is to know where you can get your goods if your current suppliers are out of commission. Even if you don't use your alternate suppliers regularly, it's critical that you identify them and establish a relationship with them. Waiting until a crisis occurs before making contact with alternate suppliers can be risky.

Find suppliers in various geographical locations that can deliver the quality of supplies you require. Get a sample of their products to ensure they meet your standards, so your customers don't suffer a decline in quality if you're forced to switch suppliers. Maintain your reputation even during a crisis as customers expect the same quality regardless of global events.

5. Partner With Logistics Experts

Supply chain management may not be your primary focus as a business owner or operator, but it's a vital part of your operations. Even if you hire someone full-time to manage it, there are factors that are out of your control. Partnering with third-party logistics experts can help mitigate potential supply chain disruptions. These experts have extensive networks of suppliers and can help you identify alternatives when regular suppliers aren't available. They can negotiate terms and help you navigate fees and surcharges. Third-party logistics companies can also conduct supply chain audits to find weaknesses and improve efficiency.

6. Implement Tools to Thwart Preventable Threats

If you don't already have cybersecurity tools in place to protect your technology, that should be your first step. Technology is under attack at all times, and most software can withstand some threats, but hackers are always one step ahead. All companies need a comprehensive cybersecurity solution that proactively protects their technology. Select a cybersecurity partner at the forefront of their industry to mitigate the risks of cyber attacks.

Actions to Take in the Event of a Supply Chain Disruption

No matter how well you plan for a supply chain disruption, you won't prevent them all. It's inevitable that your supply chain will be disrupted at times. You're only trying to mitigate the disruption and keep it as short as possible. When one occurs, there are actions you can take to manage the situation until it is resolved.

1. Be Transparent With Your Customers

Customers will understand if there's a problem with your supply chain as long as you communicate with them from the start. Be upfront about any delays and explain the reasons behind them. You might lose some orders, but you won't lose many, if any, customers. They will remain loyal to a company that is transparent about its supply chain issues. The recent pandemic has also made customers more understanding and patient as a whole.

2. Optimize the Critical Parts of Your Supply Chain

Identify the essential parts of your supply chain and determine what is most important during the disruption. Prioritize your recovery based on these critical parts. Tough decisions and trade-offs may be necessary, but with proper planning, you can live with them.

3. Consider Pivoting to Meet New Demands

During the COVID-19 pandemic, many companies pivoted from manufacturing their usual products to producing high-demand items. This flexibility allowed them to become part of a new supply chain that was flourishing during the pandemic. If possible, consider pivoting your business to meet new demands during a disruption. This can help you weather the storm.

4. Evaluate Available Inventory

Knowing how much inventory you have during a disruption is crucial. Calculate the amount of time you have before running out of inventory so that you can implement your emergency plan and repair the broken links in your supply chain. Your goal is to keep production operational for as long as possible or until the supply chain is fixed. Knowing how much inventory you have allows you to budget it for maximum efficiency.

5. Be Flexible

During a supply chain disruption, you won't be able to operate in the same way as usual. Be flexible and identify areas of your business where compromises can be made. Think outside the box and consider adjustments that allow your priorities to continue operating, even at a lower capacity. Communication with your customers is vital during this time to keep them informed.

Conclusion

It's easy not to worry about your supply chain when it's operating smoothly. However, ignoring the possibility of a broken supply chain can have severe consequences. The time to worry about your supply chain is when it's working as it should. Take action now to prepare for potential disruptions, and your company will have a competitive edge when the next major disruption occurs. Give your business the advantage it needs by taking care of your supply chain today.

This article was sponsored by Amplify Logistics and Cargo County Group.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.