Managing your supply chain can feel like herding cats. Just when you think you have a straight chain to efficiency, there is a kink.
Think through the Top 5 Reasons Supply Chains Fail to understand the common problems most manufacturers and distributors face when trying to align all moving parts of their supply chain. At Software ThinkTank, we believe the more you know about common failure points, the easier they are to avoid.
1) Swift, Dramatic Order Cutbacks
The bullwhip effect can be felt through every inch of your supply chain. A rapid, drastic cut in orders due to an anxiously anticipated change in demand creates a ripple effect that reverberates throughout your supply chain. And once this wave of cutbacks begins, it cannot be stopped.
The harshest results are often at the ends of your supply chain, those companies that provide the bits and pieces that make up the final product. In some extreme cases, these ordered cutbacks can mean layoffs and plant closures for smaller suppliers and manufacturers. Remembering how every slight change can affect each link in your chain will help you prevent a bullwhip effect.
2) Long Lead Times causing Delayed Delivery
It seems like parts of every product are made in China these days. It may be cheaper to manufacture in the land of a billion people, but what does it cost you along the way? A lot can change in the 40 to 50 days you are waiting for your shipment to arrive. And once it’s in the middle of the ocean, you can’t send it back.
Beyond long lead times, trouble at sea can double your expected delivery date with lost cargo, capsized freighters or even pirates. Try explaining to your clients their orders will be delayed because the shipping vessel was robbed by pirates – it will probably go over as well as, “My dog ate my homework”. Your clients are likely to look locally while you are waiting another 2 months for their shipment to arrive. Compare and contrast the benefits of lower manufacturing expenses to long or even longer lead times.
3) Overemphasis on Cost Cutting
Lean manufacturing is the latest trend to hit the manufacturing industry and every organization is looking into it. However, overemphasizing cost cutting can have detrimental effects your supply chain. Removing the extra slack in your supply chain may expose your broken links, but it may also remove the flexibility you need to be responsive to slight changes in orders, demands and products.
Cost cutting is at the top of every executive’s mind today; remember there is a fine balance between trimming the fat and cutting the muscle of your supply chain – don’t skimp on what you need.
4) Inaccurate Demand Forecasts
Your demand forecasting model can determine whether you have a shortage, a surplus or a smooth running supply chain engine. One unusual, out-of-scope sale embedded in your historical data can throw off your demand forecasting accuracy for years.
Without a scrutinizing eye on actual usage and unusual activity, the probability of an accurate demand forecast is as likely as winning the lottery. To ensure accuracy remember to exclude unusual activity that is not likely to occur in the future and keep your eyes peeled for trends that can change demand.
5) Lack of Risk Management Strategies
Risk is inevitable. It is up to us to determine how we adapt to the unexpected changes and make the most of every situation. As mentioned above, drastic order cutbacks can happen in every industry; trends and demands change daily. When faced with these obstacles it is better to have a proactive plan in place, than a reactive, knee-jerk that can cause more damage than the problem itself.
Having a solid risk management strategy can help you mitigate common failures. A well-planned and executed strategy can help you minimize and control the impact unexpected events can have on your supply chain, while maximizing the opportunities they can present.
Remember Newton’s Law…
Avoiding these common supply chain failures can save you time, money and resources. As the wise scientist Isaac Newton observed, “For every action there is an equal and opposite reaction.” – your supply chain follows this same principle.