by The supply chain can be extremely complicated. So intricate. And, as the supply chain becomes more complex, companies should be more aware that making the right supply chain decisions is critical for both themselves and their suppliers. Another thing to be prepared for is supply chain failure.
It is critical to ensure that your supply chain operations run smoothly. Why? Because it will have a significant impact on your company’s profit and loss.
Given the complexity of the supply chain, you must understand the factors that can cause your supply chain to fail.
To avoid supply chain failure, you must pay attention to at least five factors.
Table of Contents
Offshoring
Supply chains that rely on a large number of foreign suppliers are more likely to fail than those that rely on local suppliers.
Why is this the case?
Your ability to control your suppliers is, after all, limited to national borders. You will face difficulties if you go any further. This is especially true if your supplier is located thousands of kilometers away.
Not to mention any language or cultural barriers with these vendors. It will be more difficult for you to manage them as a result.
Unexpected events
Yes, as the name suggests, no one can predict what will happen to your supply chain.
Suddenly, a natural disaster, political upheaval, or other unforeseen event occurs that has a significant impact on your supply chain, particularly with regard to inventory. Furthermore, because the supply chain is usually cross-border, the risk is increased.
Particularly for the food industry and processed goods. If the business’s supply chain passes through several different countries, it will be more difficult to avoid the impact of risks arising from different climates in each country.
As a manufacturer who sources primary spare parts for your production from multiple countries, you are well aware that a disruption in one of the supplying countries can disrupt your entire supply chain. It even resulted in a halt in production. I’m sure some of you have had similar experiences.
You might also like:
- 8 Most Effective Ways to Reduce Supply Chain Lead Time
- 7 Effective Ways to Manage the Bullwhip Effect
Inefficient Just-In-Time Inventory Management
Today, an increasing number of manufacturers are embracing Just-In-Time and lean manufacturing methods. Perhaps you are one of them as well.
You only buy as many items as you need with the Just-In-Time method. As a result, you won’t have to keep as much stock.
This strategy is sound. You only keep as much inventory as you require. This will result in lower storage costs. This strategy would be even more effective if applied to manufacturers with relatively narrow profit margins.
On the other hand, because lean supply chains are less resistant to disruptions, this approach may result in supply chain failures.
This risk grows, particularly for businesses that use the Just-In-Time concept.
Why?
Because their flexibility is very limited if the supplier’s delivery is delayed.
As a result, if you truly want to implement the Just-In-Time concept, make sure you audit your supply chain on a regular basis. It is critical to identify risk factors that could disrupt your supply chain.
Cost pressure
You are well aware that the pressure to continue reducing operating costs exists from time to time.
You do this to reduce the costs that your customers must bear. And cost pressure can act as a filter in your supply chain.
What does it imply?
That is, suppliers who want to supply your needs must go to greater lengths to partner with you.
In the end, this pressure frequently leads to a gradual failure of the supply chain. And, whether you like it or not, you have to make changes. Suppliers, on the other hand, are frequently the ones who must bear these cost pressures and carry out cost-cutting activities.
Doesn’t it appear profitable from the buyer’s perspective? However, this level of financial stress makes the supply chain as a whole extremely vulnerable. And you happen to be one of them.
When the supply chain in such a state fails unexpectedly, you as a producer no longer have the stock you require. You don’t want something like that to happen to your company, do you?
You might also like:
- 10 Ways to Significantly Reduce Supply Chain Costs
- What is Cash Flow and How Does It Relate to the Supply Chain – It’s Not Just About Profit
Shallow supply chain
This could be a one-of-a-kind circumstance. When a company relies solely on one or a few suppliers.
And, as you are aware, such a scheme increases the likelihood of your supply chain failing. Especially if the supplier is untrustworthy.
If your company is solely reliant on a few major suppliers, you should consider the business risks you face if those suppliers fail to meet their supply commitments to you.
It’s not easy to find a backup supplier.
Especially if you expect them to maintain the same level of quality. Alternatively, if your current supplier is a specialist in that field.
If this is the case, you must work closely with your suppliers to identify and address any factors that may have a negative impact on your supply chain. Of course, this is before a larger issue arises.
Conclusion
These are the five factors that can raise the likelihood of your supply chain failing.
Failure of the supply chain is almost certainly avoidable. Although such failures are unavoidable in some cases, such as natural disasters.
In that case, you must come up with a plan to restore your supply chain to normal operation as soon as possible after the unavoidable failure occurs.
Furthermore, you should consider whether any of the five factors listed above are present in the business you are running today. So you can take the necessary steps to change your situation and reduce the risk of failure.
“If you found this article useful, please share it with your friends and join the scmguide telegram channel to receive future articles from this blog.”
