The success of today’s businesses depend significantly on the reliability of their supply chains. Supply chain disruption, even if it happens in one link, can cause devastating effects on a business.
The last decade has seen a steady increase in supply chain disruptions as a domino effect due to several events like climate change, pandemics, inflation, material shortages, geopolitical crises, amongst other factors. As a result, these problems will undoubtedly lead to increased costs, shortages, and additional delays due to greater complexity along supply chains and the number of partners and intermediaries used for each transaction.
This article will highlight some of the most crucial points to pay attention to when aiming to prevent and minimize the impact on your supply chain, as well as some useful recommendations.
Understanding these issues can help you minimize the impact on your business.
What are supply chain disruptions?
This describes the inability of a company to produce or distribute goods due to a lack of supply. An example of this are the material shortages of semiconductor chips for the automotive industry, also used in consumer electronics.
Disruptions can also be associated with events including:
- Natural disasters: water shortages, earthquakes, floods, and forest fires.
- Pandemics: COVID-19 and recent temporary lockdowns in China.
- Logistics issues: Traffic delays, congested logistics for the ocean and air cargo deliveries.
- Storage inconveniences: Shipping damages, warehouse capacity, and cargo theft.
- Labor shortages such as “The Great Resignation” impacting the logistics sector worldwide.
- Regulation changes and geopolitical crises: Wars (for example Ukraine), social and / political conflicts affecting leading sources of energy, gas, neon, oil, starch, and other commodities.
- Inflation leading to rising consumer prices.
Supply chain disruptions range from minor to major. Small disruptions can cause delays, and significant disruptions can require complete business changes that may affect multiple industries.
Why is it important?
Disruptions in supply chains can cause significant increases in costs and delays in deliveries, impact revenue and profitability; leading to lower-quality products and unhappy consumers.
Tier 1, 2, and 3 suppliers may not be able to re-open manufacturing facilities on time or at all, resulting in delays or cancellation of product shipments. Travel restrictions may delay shipments from suppliers that must be shipped by air.
Demand for products and services may decrease, resulting in excess inventory levels and/or an increase in product returns.
Supply chain disruptions are changing the rules of selling and sourcing that have been in place for over a century. They’re transforming the marketplace by reducing or, in some cases, increasing inventory to prevent future disruptions, placing buyers in direct contact with suppliers, and accelerating the speed of doing business.
Recommendations for your supply chain
The following recommendations are designed to reduce the supply chain disruption impact on your business:
- Identify critical components based on product lead times and inventory levels.
- Increase safety stock levels where possible.
- Be informed, calculate risks, and prioritize.
- Review alternative sources of supply for critical components based upon lead times, quantity available, and geographical location to ensure minimal impact on production schedules.
- Develop contingency plans to rapidly deploy alternative sources of supply in the event supplier production is delayed or canceled.
- Support your suppliers financially through incentives and early payments. With Bancoli, you get yield opportunities and rewards while strengthening your supply chain.
- Increase communication with your suppliers to reduce the issues that may arise during the production and delivery process.
- Consider having backup supply chain options, and diversify your value chain network.
- Know your Supplier (KYS). It is important to know who you are working with in order to avoid any potentially harmful situations. With Bancoli, your suppliers go through a verification process before conducting any transactions with you.
- Evaluate environmental, social, and governance (ESG) requirements applicable to your business to reduce and avoid creating waste and greenhouse gas emissions. Companies are increasingly focused on social responsibility and reducing the negative environmental impact of their supply chain.
- Invest in innovative processes. Bancoli’s technology can help you speed up processes while eradicating human errors resulting in over/underpayment of invoices.
- Use the power of IoT to automate and optimize supply chain management decisions by connecting the physical world with enterprise systems to drive business value.
- Integrate automation tools like analytics and AI for real-time reports across the supply chain to prevent disruptions and improve decision making.
While the speed at which technology has evolved has undoubtedly created many problems, it has also allowed organizations to develop innovative solutions to these same issues. Remember that your most important business relationships are with the suppliers and customers on the ends of your supply chain. That disruption can negatively impact all subsidiary relationships along that chain.
In today’s expanding and highly competitive market, companies need to ensure supply chain disruption does not become a drain on their resources. Taking the proper steps upfront to manage potential disruption impact will help ensure the success of your business for the long term. Products like Bancoli can help expand possibilities and create new opportunities through strategic investments today.
Bancoli is a fintech-first international invoice, payment, and banking platform that optimizes efficiency across multiple businesses and industries. Learn more on how Bancoli can help you prevent supply chain disruptions that may affect your business.