Supply chains move efficiently and predictably — until they don’t. The common denominator for the five supply chain-derailing situations we’re about to review is simply this: an ounce of prevention is worth a pound of cure. Supply chain management professionals who put processes in place to solve these five problems before they occur will keep things moving even when other, less carefully managed supply chains, come to a grinding halt.
Problem 1: No Backup Plan
What happens when a supply chain disruption occurs that is fully beyond your control? An example of this is the recent West Coast port shutdown, which has already cost commercial enterprises in excess of $20 billion. It has affected every product and geography imaginable, with oranges rotting in the sun and Midwestern auto manufacturers running in neutral.
The recent strike is only the latest phase of an ongoing West Coast port bottleneck that has severed tens of thousands of supply chains that depend on exports and imports. To avoid plant shutdowns, Toyota and Subaru are airlifting parts — costing Subaru $60 million per month.
Could organizations have put logistical backup plans in place to overcome the challenges of such a massive supply chain disruption? If so, preparations would need to have been made many months in advance, before the port situation became obvious and every affected company began looking for alternate shipping and receiving routes.
Supply chain management necessitates an ongoing discussion of “what-if” situations; some, such as the port shutdown, are predictable to a degree, while others, such as a natural disaster, may come with no warning at all. With advance planning, logistical workarounds may be unattractive and expensive, but at least they will be implementable — and in a crisis, that may make all the difference.
Problem 2: Inadequate Vendor Management
They say a picture is worth a thousand words, and this is certainly true of supply chain vendor management. Without on-site visits, is it difficult to know for certain whether a vendor is meeting basic, documented requirements for inventory control, quality, shipping accuracy, etc. — let alone whether the vendor has a clean, safe and high-morale work environment. Regular visits are a necessity, and at least some are best conducted on short notice or with no notice; if a vendor always has time to prepare, you may not see the real, day-in, day-out operation. Energetic scrutiny keeps a supply chain’s vendor base from lapsing into inefficiency.
Problem 3: Lack of Efficient Performance Metrics
For supply chain performance metrics to work well, they must measure the true key performance indicators (KPIs) and be easy to calculate. For instance, order status is an important item to track, but some firms lack computer systems with that functionality, while others have the software but are tied to cumbersome legacy systems that don’t fit into it. In either case, the effort required to extract order status information may be too time consuming and ultimately too inaccurate to be cost effective.
Supply chain managers and IT professionals must maintain ongoing dialog to ensure that KPIs are correct and comprehensive, and that they can be supported by the organization’s information systems. For obviously important metrics such as inventory carrying cost, shipping accuracy and backorder rate, information systems must be in place or the supply chain will be moving in the dark.
Problem 4: Inaccurate Documentation
Technology can be a supply chain manager’s dream come true or worst nightmare in terms of documentation. For example, a bill of lading manually written out by a shipping clerk is a “system” with high exposure to error. But on the other hand, a software-driven bill of lading can also result in errors, especially if the software is complex, poorly integrated and managed by personnel who don’t fully understand it. Furthermore, documentation errors arising from computerized systems may be more often missed, because accuracy is taken for granted and no checking systems are in place.
Small documentation errors can produce major weaknesses in a supply chain: for example, incorrect product identification labels cause shipping errors; incorrect inventory reports cause excess or insufficient inventory levels. Ongoing testing and auditing are essential to ensure that documentation procedures are well-organized and accurate.
Problem 5: Lack of Personnel
As these first four problems illustrate, supply chains don’t manage themselves. Far from it: successful supply chains require professionals working at all levels, within an organization and outside the walls. Without high-quality leadership, it becomes difficult if not impossible to implement backup logistical plans, let alone create them. Without personnel in the trenches to make sure things are happening in reality and not just on reports — supply chain efficiency is bound to slip, gradually or precipitously.
Organizations that staff supply chain management functions adequately are customer focused. They understand the purpose behind their KPIs is customer satisfaction: the reason to eliminate backorders, for instance, is to keep customers happy and keep them coming back. Loyal, enthused customers are the foundation of any fruitful business — when companies think of supply chain management in these terms, cutting corners would never cross their mind.
Brad Poulter is the Executive V.P. of Operations at Best Transportation Services, Inc. Best Transportation is a Chicago-based delivery company that assists businesses with their material transportations needs through their extensive courier services.