In the face of increasingly fierce competition in the manufacturing industry, businesses encounter risks of supply chain disruptions, causing goods to be stuck and unable to flow from production to consumption. This phenomenon negatively impacts overall business operations, particularly leading to financial losses. Therefore, managing risks and minimizing disruptions to enhance supply chain resilience and maintain flexibility is a top priority for manufacturing enterprises.
With 15 years of experience in consulting and implementing optimal operational solutions for leading manufacturing companies both domestically and internationally, CMC Consulting has compiled strategies to help businesses successfully reduce supply chain disruption risks in the following article.
Causes of Supply Chain Disruptions
The global supply chain, which has just resumed, has faced further disruptions due to geopolitical instability in several countries and new waves of COVID-19. Highly dependent on imported raw materials, many domestic manufacturing sectors are struggling, and companies face the risk of delayed export orders, leading to payment risks. The factors creating supply chain disruptions are diverse and increasingly complex, intertwining internal issues and external impacts.
External supply chain risks affecting the flow of goods include:
- Shortages of raw materials: Key supply chain links such as raw material production areas, processing regions, and maritime transport are affected by global political and economic fluctuations, leading to shortages of production materials.
- Fluctuations in transportation costs: Rising fuel prices increase freight costs, causing financial damage to businesses. Additionally, companies incur extra costs for unloading and rerouting goods due to shipments that need to be canceled or returned to warehouses.
- Transportation bottlenecks: Major global ports face congestion issues, with extended waiting times for cargo ships leading to new complications such as high port fees and surcharges, impacting multimodal transport operations. The congestion also makes container circulation difficult, resulting in a global container shortage and increased shipping costs.
- External environmental risks: Environmental risks, including political, economic, social factors, or severe weather events, not only change consumer habits and behaviors, making purchasing decisions unpredictable, but also lead to inaccurate forecasts of market demand due to strong fluctuations in the international market. This is a logistical nightmare for manufacturing businesses.
In addition to external impacts, internal risks also contribute significantly to creating bottlenecks in a company’s supply chain. These are issues within the supply chain that are under the company’s control, including:
- Incidents during the production process: Equipment failures, technology issues, and product quality problems can disrupt production lines, preventing timely product delivery to subsequent processes in the supply chain.
- Transportation risks: Errors during transportation due to inaccurate weight and size calculations and various issues that may arise during transit can prevent businesses from receiving products or supplying customers.
- Inefficiencies in planning and control: When businesses fail to adjust forecasts or accurately assess production, management, and customer demand, they struggle to effectively prepare for external disruptions in the supply chain.
5 Strategies to Help Businesses Mitigate Supply Chain Disruption Risks
A volatile economic environment demands that supply chains respond quickly, transparently, and be well-planned. Therefore, businesses need to develop effective supply chain management strategies to minimize risks and losses from disruptions that fall within or outside their forecasts.
The application of technology is gradually being integrated into businesses to combat inflation. According to the latest research by Gartner, most leaders of global supply chains believe that investing in technology is one of the most significant competitive advantages they can have. Here are 5 strategies successfully applied by top businesses worldwide, shaping supply chains in the era of 4.0 Industry:
1. Minimize Dependency Risks on Suppliers
About 80% of supply chain disruptions originate from small suppliers. Supply chain managers are fully aware of these risks and have long sought to mitigate them, but traditional systems and operational processes have made this impractical. Businesses need to be able to trust their suppliers to provide suitable prices and volumes, but that is just part of the risk management picture. Supply chain managers must completely trust the sourcing of goods within their supply chains—from handling to the ethical practices of suppliers.
Cloud-based supply chain management and integrated business processing tools can connect networks of suppliers in real-time. This means that not only are supply chains more transparent, but businesses can also build a more diverse supplier network. Thus, if one party fails, others can quickly step in.
2. Optimize Warehouse Management
A fundamental challenge for every supply chain manager is balancing shortages and surpluses. In the past, analysts attempted to assess past customer and market activities to predict inventory balances. During disruptions and volatility, this retrospective approach becomes particularly risky.
Today, businesses have access to real-time predictive data analytics through smart warehouse management systems (WMS) to build more accurate forecasts and improve supply chain visibility. Many companies apply demand forecasting technology and optimize inventory using artificial intelligence (AI), machine learning, and advanced analytics to ensure efficiency in warehouse operations.
3. Plan and Forecast for Supply Chain Disruptions
Controlling inventory levels and planning for surplus—whether finished goods, components, or even raw materials—will help businesses respond to future supply chain disruptions. Companies should consider stockpiling before times of the year when supply chains are likely to be disrupted, such as peak seasons or times when environmental factors like storms or floods may impact their suppliers.
According to Bill Thayer, CEO of Fillogic, a logistics company for retailers in New York, “The COVID pandemic taught us the importance of planning for peak seasons a year in advance.”
A popular supply chain risk management strategy used by businesses in contingency planning is the PPRR risk management model. “PPRR” stands for:
- Prevention: Implementing measures to reduce the impact of supply chain disruptions before they occur.
- Preparedness: Developing a contingency plan if supply chain emergencies occur.
- Response: Executing the contingency plan when disruptions occur.
- Recovery: Resuming normal operations as quickly as possible.
When planning, businesses should consider breaking down their strategies according to these four concepts to manage their contingency plans effectively and continuously assess and measure their success. Nowadays, businesses can leverage digital technology to simulate plans and make accurate forecasts.
4. Focus on Maintenance to Avoid Production Disruptions
To ensure efficient and continuous management of operations across functional departments, businesses need to prioritize maintenance to prevent production disruptions. There are two maintenance methods used in businesses:
- Reactive Maintenance
Reactive maintenance (also known as corrective maintenance) involves restoring and repairing equipment or machinery that has failed to return it to normal operating status. The advantage of this strategy is that businesses can maximize the value of their machinery. However, this method poses risks of equipment failure and even complete production line breakdown, which can be much costlier than early replacement or repair. Even a small issue, like a bearing failure, can significantly reduce a business's production capacity. The worst-case scenario for any manufacturing business is unplanned downtime. - Predictive Maintenance Based on IIoT Applications
By applying advancements in IIoT technology, predictive maintenance uses historical and real-time data collected through sensors to provide the most accurate picture of machine operation status in real-time. This analytical data allows the maintenance department to schedule maintenance tasks “just in time,” paving the way for smart manufacturing.
5. Apply Technology in Supply Chain Management
ERP software is becoming an essential part of supply chain management, ensuring that manufacturers can respond to market fluctuations. ERP systems provide businesses with an overview of all business operations to improve supply chain management, featuring sales management, purchasing, material planning, supplier and carrier management, and financial management.
According to Michael Larner, a principal analyst at ABI Research, the supply chain impact of COVID-19 will drive manufacturers' spending on ERP to $14 billion by 2024.
With over a decade of experience, CMC Consulting is a leading provider of consulting and implementation solutions for ERP business management, both domestically and internationally. With a team of knowledgeable experts and practical experience in the field, we are committed to consulting and providing ERP solutions that are suitable, effective, and competitively priced based on each customer’s scale and needs.
Contact our Digital Transformation Consulting Experts in Manufacturing here.
Giang Hoàng
19/06/2023
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