Preparing for the “unthinkable”
April 19, 2011
As noted in today’s news, the reality of supply chain disruption – for both the 200-mile local and 10,000-mile global supply chain – requires a new set of mitigating tactics. Here are just a few suggested by JDA Software Group, Inc. for both manufacturers and retailers:
▪ Undergo a systematic analysis of the total landed cost related to a variety of procurement strategies in order to realistically assess the potential value delivered by a global supply network and make informed decisions regarding risk versus reward. It is important to make this assessment an ongoing process, allowing for frequent plan updates as political conditions, fuel prices, tariffs, currency exchange rates, labor costs and other factors change.
▪ Create contingency plans through detailed business simulations and what-if scenario analysis. Risk exposure can be minimized by creating backup production and distribution plans that include second- and third-tier materials sources, component vendors, substitute parts and transportation carriers. Having prioritized allocation plans allows for scarce inventory to be allocated in the manner that makes the best strategic sense. Having ready knowledge of alternate supply sources and establishing substitution strategies in advance can help ensure that product remains on the store shelf, even in the most challenging environments.
▪ Ensure that contingency rules and policies in place at the strategic level also exist at the operations or tactical level. Running what-if scenarios in advance at the tactical level can help companies operate through short-term supply contingencies without significant interruption or a long-term business impact.
▪ Monitor daily operating conditions on an ongoing basis so that demand spikes, local weather events, labor strikes and other short-term performance threats can be anticipated and managed as effectively as possible. Since variability is a given at the operational level, it is crucial to maintain a robust, ongoing Plan-Do-Check-Act (PDCA) cycle that continuously monitors and corrects any mismatch between supply and demand. A continuous PDCA process can address minor issues before they become major supply chain disruptions by keeping planned and actual results as close as possible.
▪ Monitor supply chain activity when disaster strikes to quickly adapt preplanned promotional and marketing campaigns as product availability changes. Campaigns may need to be suspended or substitution strategies initiated to ensure that customer needs are met and that both retailer and manufacturer can make good on their promotional promises.
▪ Collaborate to achieve greater visibility from manufacturing to the store shelf. Collaboration between manufacturers and retailers must include trust and transparency to ensure disruptions are met with more agile and effective responses. Building these relationships now helps ensure that business plans are aligned and all parties are better positioned to respond quickly with a goal of keeping products on the shelf in even the most difficult circumstances.
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