From port congestions to lack of skilled workers, supply chains are impacted daily by risk. The Association of Supply Chain Management (ASCM) (Dec. 2, 2021) notes four approaches companies can take to minimize future supply chain interruptions:
- Place deadlines on seasonal peaks. Peak season for most retailers historically refers to the busiest months of the year. As that demand has grown, carriers have set holiday shipping cutoffs, which brands and retailers have also adopted, to ensure customers receive packages on time. Setting order deadlines comes in handy in various categories at other times of year when a surge in activity is expected.
- Keep sourcing local. For example, Snap-On Tools’ supply chain has been minimally impacted the pandemic because most of their parts are produced in house or locally. Newell Brands, which makes Sharpie markers, has also benefited from keeping much of the manufacturing for its writing business in the U.S. This has allowed the company to avoid issues with ocean freight and ports. Locally sourced materials not only reduces lead times–it also reduces minimum buys, retains more control over materials, and lowers overall costs.
- Build up inventory. Firms need to create a stockpile of supplies that can sustain business through several months of disruption; this may entail an array of components from raw materials to finished goods. Some companies try to stay as lean as possible with a just-in-time (JIT) inventory strategy, for example, only stocking what’s expected to sell, plus some safety stock. Identifying ideal inventory levels starts with the economic order quantity (EOQ) formula to calculate ideal order sizes, and reorder point (ROP) to determine the specific level at which stock must be replenished, our topics in Chapter 12.
- Track threats to the supply chain. Companies are constantly on the lookout for supply chain impacts on business. Many strategies, technologies and software are available to help companies keep track of potential interruptions to supply chains on their own. For example, companies can use AI-enabled mapping can create a global map of their supply network, can assess risk factors using a weighted ranking system, or can use a Value at Risk metric, which allows them to compare the risk levels of various suppliers. There are also environmental analysis solutions, aggregate apps that provide geopolitical overviews, and systems that defend against software supply cyberattacks.
Classroom discussion questions:
- Give examples (that are not noted above) of specific companies applying one or more of these approaches.
- How have UPS and FedEx handled peaks this holiday season?