How do you plan for volatile situations as it applies to: supply chain disruptions, inflation, resource shortages, pandemics, vendor and customer instability, and more?
The answer is complex, and it involves some real soul searching and changes in the accepted practices that are presently in place in your organization. How many companies will be serious about making these changes and in some cases can they actually be supported by their market (customers and vendors) in its present state?
We are caught in a chicken or the egg situation – what came first and caused the other issues? Was it the pandemic, was it our reliance on outsourcing, was it world or local politics, and more? It obviously is all the above.
To begin with, the pandemic stressed our supply chain which revealed the weaknesses in the system and made a substantial effect on our supply system. It exacerbated existing issues and caused them to rise to the top – just like the famous rocks in the lake inventory image below.
In the past, we implemented solutions that have now created the situation we are in. As long as all was being reasonably managed, we were OK – or were we? Obviously not! Had we been OK we would not be experiencing all the supply chain issues exacerbated by resource issues, stressed by inflation, and totally blown out of the water by customer expectations.
So now we have a situation where all of our past business decisions are coming back to haunt us and require re-thinking and re-invention. In other words, it seemed like a good idea at the time and everyone else was doing it.
What plans have you in place if:
- Vendor cannot deliver
- Shipment sitting on a ship outside a harbor
- Shipment sitting at the docks because there are no trucks for pickup and delivery
- Cannot hire resources to support customer needs
- Components & raw material prices are rising
- The worker pool is low
I suspect that increasing inventory levels is not the answer to the dilemma.
- Can you actually get delivery of this new level of inventory?
- Can you afford the carrying costs?
- Do you have alternate vendors you can turn to with shorter lead times?
- Can you forecast the right mix of excess inventory to weather you through the storm (note this is not a short-term situation)?
Let’s put down a few ideas that we would need to consider (none of these are based on political views – just business acumen).
Find a vendor that does not require long-distance transport especially trans continent
Try to find a vendor on the same continent.
- Could cost more per piece but consider the total landed cost for other options
- Consider inventory carrying cost – shorter lead time therefore less inventory
- Time to respond to emergencies – takes less delivery time and is less expensive to ship overland than overseas
Re-envision and re-define your hiring and retention processes
- Are your salaries competitive?
- Create a sticky compensation plan
- Provide a professional growth plan with the necessary educational assistance
- Be creative in acquiring and maintaining your work force.
Provide a pleasant experience for your customers and create a sticky relationship
- Are you easy to do business with?
- Do you have Portals and other electronic means of communication for your customers?
- How solid of a partner are you? And what are you doing to strengthen that relationship?
Not much you can do about component and raw material price hikes, however:
- Do you have a strong partnership with your vendor – how can you work together to minimize the effects of inflation and create a win/win situation?
- Are you providing good requirements and solid long-term planning information?
- With the market volatility, we are experiencing you may want to work out a sharing approach to inventory requirements. A hybrid version of Lean, JIT and MRP inventory management.
There are more areas that you can review and address to assist you in managing the situation and minimizing its impact on you, your customers and vendors.
This is a blog and not a dissertation so I will keep it short but there are long-term and short-term approaches that can be applied to help minimize the pain and allow you to thrive against all odds.