July 2013 | Commentary | Risks and Rewards

Preparation: Your Best Asset in Managing Supply Chain Disruptions

Tags: Supply Chain Management, Risk Management

Lorcan Sheehan is Senior Vice President of Marketing, ModusLink Global Solutions, 781-663-5000

Supply disruptions occur daily, caused by delayed deliveries; weather impacts on inbound supply; and prolonged standstills associated with natural disasters, port labor strikes, or critical supplier failures. Whatever the reason for the disruption, supply chain managers prove their value by delivering—no matter the circumstances.

An active risk management process helps identify a range of possible disruptions, and should focus on managing risks most likely to occur, with the highest business impact risk. You can anticipate many potential disruptions on some level, and this should allow for mitigating actions to reduce any impact. For example, port strikes and supplier bankruptcies rarely occur without some warning signs. A continuous effort to monitor the situation is key.

The Big Picture

When a disruption does occur, your company will likely be one of many looking to secure what may be scarce alternate sources of supply. To succeed, you will need to understand the disruption's impact on current and planned supply.

Many companies have started to geo-tag their suppliers (and sub-suppliers), linking them to components and, ultimately, to end products. With this data, they can connect particular disruptions and the revenue at risk in current order books. This view helps prioritize recovery actions with current or alternate suppliers, and aids proactive communication with sales and marketing colleagues and customers.

Direct collaboration with suppliers should focus on accurately assessing the disruption, and establishing baseline commitments for a recovery to normal supply. From this you should gain a picture of the current supply gap, which you can address by:

  • Working with suppliers to improve on initial baseline commitments.
  • Finding alternate sources of supply to fill that gap.
  • Considering inventory coverage, including rework as needed.
  • Working with sales and marketing to prioritize channels, orders, and products.

Working these recovery plans in parallel may require establishing a short-term over-supply situation. This is prudent in the case of prolonged uncertainty, but you should closely monitor perishable and short-lifecycle products. While the priority will generally be to restore normal supply, you will also need to give some attention to the costs of expedited actions, and gain agreement on which parties should bear these costs.

Who is First in Line?

In times of constrained supply, inventory allocation becomes a critical function. Sales and marketing can work with customers to separate critical orders from standard replenishment so key customers and channels will get priority service.

Providing regular updates during disruption recovery helps manage customer expectations, and executing against recovery commitments maintains customer confidence in your company's ability to supply.

At the end of the recovery process, take time to learn from the disruption, update your risk plans, consider how suppliers performed under pressure, and assess how you can improve your own processes to be better prepared for the next supply disruption.