The 6 Greatest Challenges to Your Supply Chain

The 6 greatest challenges to your supply chain

A Three Part Article Series from QAD DynaSys – Greatest challenges to your supply chain

Part Two of our three part article series. Read Part One 10 COVID-19 Lessons for the Resilient Supply Chain if you missed it.  

In this series, discover how the COVID-19 pandemic gave us the keys to build a resilient supply chain and and overcome challenges of your Supply Chain. Robert Drew presents you with 6 Takeaways for Future Supply Chain crisis to overcome challenges of your Supply Chain.

Most years bring challenges to service and profit goals. The ongoing pandemic crisis can challenge your supply chain organization’s very capacity to add value.

Challenges of your Supply Chain Your Capacity to Add Value

Challenge 1 – Your Workforce Readiness

  • Workforce and workforce family health must come first. 
  • Develop a plan for rehiring, re-engaging or (if necessary) increasing staff, based on demand and your S&OP (Sales & Operations Planning) decisions.

Over the course of a long career supply chain professionals will face demand shocks, such as recessions or competitive jolts, that may necessitate head count adjustments. The pandemic brought this in abundance across a wide swath of industry, but then it also reduced headcount for some organizations by sickening some employees and their family members. More work has been disrupted by blanket stay-at-home orders and quarantines of those exposed to the virus. This again testifies to the uniqueness of this crisis.  

Takeaways for Future Supply Chain Crises

Your workforce is your most necessary asset; no one has yet found a way to run a completely automated organization. To recover from this pandemic have documented plans in place for the following:

  • Headcount ramp up
  • Workplace safety to prevent COVID-19 spread
  • Outbreak readiness    

Then document how you developed these plans. And retain this for future crises and disruptions. 

However, these will be subjective to your business and your industry. But rely on the expertise of your workplace safety, facilities, occupational health and HR professionals to develop these plans for this crisis. And be able to apply such plans to the nature and scope of whatever disruptions arise in the future.

Challenge N°2 – Your Financial Viability

When it comes to supply chain disruptions, your ability to weather storms financially depend on these factors. Usually in the following order:

  • Cash flow and working capital
  • Credit
  • Exposure to foreign exchange

Takeaways for Future Supply Chain Crises

Cash flow is the lifeblood of any business. It keeps the lights on, suppliers paid and the payroll met. In the global pandemic many companies find themselves squeezed for cash from multiple directions. B2C customers stopped buying. B2B customers slowed, or stopped altogether, covering their payables. Logistics issues reduced service levels, which slowed payments. And so on.

How to best manage cash flow is to a large extent industry-subjective, but the first rule of finance during protracted supply chain disruptions is make sure you have sufficient cash at hand and coming through. Beyond pandemics, this applies to recessions, wars, and natural disasters as well as industry-specific downturns and shifts – and to good times too.

Add S&OP in your Supply Chain Model

Two other financial factors of note are credit and forex exposure. Having well-priced credit gives companies the ability to better manage cash shortfalls and invest in low cost opportunities that present themselves during disruptions. Supply chain management can help Finance pay its bills on time to maintain solid credit by doing its part to manage cash. 

Knowing your customers and their customers helps you prioritize service for those most financially secure. Though this is not the only customer management priority it becomes more important during disruptive periods. 

Finally, be mindful of the currency expected for your receivables and payables. Regional supply chain disruptions can add another worry when payment is expected or receivables need to be covered in a foreign currency – a currency that can dramatically shift in value as the contract is being fulfilled. In global disruptions hitting both the supply and demand sides this can be more difficult. Make the prevailing currency of your customers your company’s default currency for receivables and payables. Or consider making the US dollar, the default global reserve currency, your currency of choice for this.

Challenge 3 – Your Asset Readiness

Have plans to maintain your physical resources – property, plant, equipment and inventory stocks –  as your human and financial resources.

  • Ensure sufficient material and inventory stocks
  • Plant and equipment integrity

Takeaways for Future Supply Chain Crises

How much ready inventory should you keep on hand to prepare for an upswing in made-to-stock orders? How much material stock for firing up your production lines, or for potential made-to-order POs? Periods of supply chain disruption are where your Sales & Operations Planning (S&OP) process can really show value.

Make sure all relevant teams in your company meet on at least a monthly basis to adjust production and operations plans to the evolving realities. (Through the pandemic some companies have even conducted weekly S&OP meetings, such is the unique and chaotic nature of this crisis). It is critical for supply chains to employ a blend of ongoing and periodic planning to understand the playing field as a team and optimize decision-making. 

S&OP and Supply Chain Challenges

S&OP meetings, and the ongoing S&OP process, are where your company can review upcoming promotions, events and other expected plan deviations, anticipated and actual orders, inventory levels and material stocks by product type, distribution and supply issues, and much more. Especially relevant, the planning team can discuss probabilities related to where the crisis is headed and decisions they’ll need to make. 

Have a system in place that can support an ongoing S&OP process, can inform the planning team of critical developments between scheduled S&OP meetings, and can provide rich, digestible data to make these critical sessions productive.

When it comes to property, plant and equipment, the pandemic crisis imposed the unique challenges of maintaining your assets through shutdowns and stay-at-home periods and building in social distancing spacing and other health/safety failsafes. Many disruptions, however, require companies to curtail production or ramp up at uncertain rates. 

Can the right mix of automation and skilled labor force prepare you for the next disruption? Production environments, from assembly line to job shop, and distribution facilities have been investigating automation options for a while, but the pandemic crisis has provided a new business case. A modified, partially automated plant may contribute to the flexibility required in a world where disruptions may be more frequent.

Challenges of your Supply Chain On the Supply Side

Challenge N°4 – Your suppliers’ workforce readiness

Know your suppliers like you know your customers. 

  • Workforce health and workforce family health
  • Ability to rehire, re-engage or increase staff if necessary
  • Legal ability to operate

Takeaways for Future Supply Chain Crises

The COVID-19 pandemic started out as a China disruptor. For a short time global supply chain leaders just worried that their supply base in China, still called the world’s factory, will tank service levels. Very soon, however, one headache multiplied to many as the virus spread globally.

In that case, in a situation where the ability of your suppliers to fulfill orders or take new orders has been compromised, make it a point to understand how the workforces of your regular suppliers and that of their geographic regions are impacted. Get an idea of how many people on staff are able, what percentage of the region’s workforce may be affected, and whether there are legal impediments to operations, such as stay-at-home orders or classification as non-essential businesses. Finally, are there regulatory or physical impediments to rehire or re-engage staff when this is again possible.

This applies to pandemics, natural disasters, civil strife, and even economic collapse, among others. For this, build connections with your suppliers over time, and monitor government and published information from reliable sources.

Challenge N°5 – Your supply side bench strength

How secure and redundant is your supply base?

  • Supplier redundancy
  • Supplier diversification
  • Your suppliers’ suppliers

Takeaways for Future Supply Chain Crises

Are you dependent on one supplier for any key part or product? More commonly, are a significant portion of your material and inputs sourced from one country? No small number of electronic components, as well as rare earth elements and other commodities, source only from China nowadays. Some global buyers are beholden to just one source. 

One of the largest pre-pandemic supply chain disruption stories was the US-China trade war. Numerous components and finished goods manufactured in China became more costly, and US companies began looking at other Asian countries, Latin America, and even stateside facilities (reshoring) as alternatives (always weighing the additional tariff expenses against cost of labor and other inputs). Conversely, Chinese companies began putting more effort into non-US markets. 

Do you have sufficient relationships to cover current and possible future needs, in case any key suppliers are seriously compromised or outright fail? Stateside, according to the US Chamber of Commerce 54% of non-sole proprietor firms had closed by early April. If your company was still working and had orders to place or expected, you better have had a backup source.

As you should make a point to understand your customers’ customer bases, you need to do likewise with your suppliers’ suppliers. How do your suppliers fare when it comes to the redundancy and diversification of their own supplier bases?

Finally, as with distributors, suppliers usually seek to own their supply relationships. But by building relationships and working with them diplomatically and generally developing knowledge about your industry’s players, you will know whether to address concerns about whether your key suppliers are too exposed this way, and have a greater sense of resilience for facing future crises.

Challenge N°6 – Your suppliers’ financial health

Beyond your suppliers’ ability to maintain a viable workforce, how about their financial wherewithal? In the next trade war, recession, or commodity market collapse will your supplier be able to fulfill the orders in your pipeline?   

  • Cash, credit availability
  • Diversification of suppliers’ customer bases

Takeaways for Future Supply Chain Crises

Suppliers should not be expected to fully open their books to their customers, but astute buyers vet their suppliers on financial viability. Supplier experience and credit rating is readily available. Beyond that, ask your suppliers for metrics assessing creditworthiness, inventory turnover, cash flow and financial soundness. 

In addition, find out the number of customers, which industries and geographic markets are represented in their customer base, typical order size, and, if possible, identities of their largest customers.  

Don’t miss Part Three of our series on supply chain lessons from the COVID 19 pandemic:  COVID-19 in 2021: Supply Chain Organizations’ Biggest Concerns.