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Supply chain disruption – Definition, challenges, effects, and strategies

November 2, 2022

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Organizations worldwide are susceptible to supply chain disruptions, from natural disasters and economic instability to the health pandemics like COVID-19. The factors contributing to these global risks are beyond a company’s reach; businesses are, however, not entirely powerless. By applying the correct Automation and AI tools, companies can better stock up the popular products ahead of demand, forecast slowdowns, and even produce needed parts in-house.

Hence, tech-enabled software solutions can be implemented to curtail supply chain disruptions for themselves as well as the customers the supply chain companies serve.

Current global supply chain challenges

Limited resources: The sudden spike in consumer demand following the pandemic lockdown raised concerns about insufficient input. Post that, supplies of essential materials continue to dwindle. Hence, merchants and suppliers need help meeting this demand.

Rising freight costs: Contrary to initial expectations, the need for container transportation has increased dramatically throughout the pandemic. Global lockdown measures have led to a spike in online purchases, increasing demand for imported raw materials and finished consumer items (a large percentage of which are moved in shipping containers).

And because this demand was so much higher than expected, there was a record-breaking shortage of empty or available containers and inadequate shipping capacity. This scarcity has resulted in a sharp price increase.

Challenges in demand forecasting: Legacy demand forecasting methods proved inefficient for supply chain management during the global pandemic for many businesses. For many retailers and providers of consumer goods/services, the global health crisis virtually destroyed the projections, leaving them without a reference for how much inventory to stock or make at any one time to meet the sudden spike in demand for essential items.

Therefore, difficulty has arisen from attempting to enhance client demand estimates while, in many cases, relying on intuition rather than data-driven study. Supply chain managers seek out new data sets for forecast models and continuously hone their findings for the highest level of accuracy.

Port overcrowding: Given that port owners, carriers, and shippers are still looking for a practical solution to this issue, port congestion brought on by the epidemic continues to be one of the most critical issues for the world’s supply chains. When a ship docks at a port but cannot load (or unload) its cargo because that station is already full, congestion occurs.

Although the loading and unloading procedure generally proceeds as planned, manpower shortages and societal alienation brought on by the pandemic have noticeably changed things (creating major bottlenecks at some busy global docks).

A shift in consumer mindset: The epidemic also has significantly altered consumer attitudes and habits, lowering the bar for delivery times, and raising the standards for a satisfying customer experience, for example. The difficulty lies in building a flexible supply chain that can use automation to maximize fulfillment and quickly meet increased demand. Inventory management software and multichannel order fulfillment services are great examples of this flexibility in the supply chain.

The digital revolution: Digital transformation and IoT can be a mixed blessing for supply chain operations. Many technologies, such as artificial intelligence, drones and robots, electric cars, and on-demand delivery, can improve how we approach the conventional supply chain.

The difficulty lies in deploying these systems/services across a company’s current supply chain activities, even while their long-term goal is to make e-commerce supply chain procedures more efficient and cost-effective.

Employing these technologies requires exertion and organizational reconfiguration, especially when dealing with various warehouses or omnichannel selling. However, supply networks must constantly change if they want to remain competitive.

Impact of supply chain disruptions

Disruptions like those brought on by the epidemic have a high global cost. These interruptions significantly impact the entire chain and have various consequences that will manifest themselves subsequently. The following implications of supply chain interruptions are well-known:

Key strategies to overcome supply chain disruptions

Safety stock: Even though increasing buffer capacity improves resilience, it leads to underutilized production facilities or inventory that exceeds the need for safety stock. Buffers are costly; hence, demand sensing is applied to reduce the risks of wastage or loss of items or shelves running dry during a demand surge. However, top corporations deploy buffers during new product introduction or development of new growth markets. Additionally, companies maintain buffer stock by carefully implementing contract manufacturers for their surge needs.

Multi-sourcing: Supply chain leaders should maintain a wider supplier network to facilitate a multi-sourcing strategy. Furthermore, they classify suppliers depending on their spending capacity and any disruptive event possibly affecting their revenue. Diversifying is accomplished by reaching out to more suppliers or working with an existing sole or single-source supplier who can produce from many places.

Bring the product closer: several businesses are striving to shorten the cycle times for finished goods and reduce regional dependence on their worldwide networks. However, regional or local supply chains are more expensive because they increase the ecosystem’s complexity and the number of participants. But local supply chains enable greater inventory control and bring the product closer to the customer.

Harmonization: Harmonization helps with process standardization to ensure consistency of all sites that are aligned to maintain quality. Many organizations are extending manufacturing to suppliers to maintain harmony in the supply chain. Furthermore, harmonization also foresees effortless movement of items throughout the network. This facilitates the proper placement of more enormous volumes among various providers. It simplifies sourcing policies, increasing resilience.

Alliances: The pandemic highlighted the need for a diversified sourcing network. Also, strong ties with contract manufacturers and international 3PLs are crucial for businesses. Hence, many enterprises work with outside manufacturers and logistic partners.

Bottom line

Although supply disruptions are unavoidable, companies can help themselves by being ready for even the most unlikely circumstances. The situation can be avoided by carefully preparing for quick and correct responses, assessing potential supply chain risks, diversifying suppliers, and finally using over-the-top platforms such as TradeEdge Network to transform the value chains.

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