How Managers Can Reduce Risk of Supply Chain Failures

Current state of supply chain

COVID-19 has caused disruption in many ways, and in 2020, we have seen how fast the rate of change can be. Companies have seen demand spikes in nearly every industry. Companies have also seen a sharp rise of e-commerce fulfillment pressure stemming from the shift to digital.

No supply chain manager wants to deal with the consequences of a failed supply chain. But the fact remains that risk mitigation costs money. Managers must decide whether it’s worth investing in supply chain management products and services, taking into consideration their likelihood of a high risk event occurring.

Know where your supply chain stands

One of the best ways to do that is to identify characteristics about the current state of their supply chain. That way, supply chain managers can hone in on what would actually benefit them and the areas they should focus on.

Fortunately, organizations like Peerless Research Group have studied the strengths and weaknesses of companies so you can know where you stand. Peerless Research Group, on behalf of publication Logistics Management, published in 2020, identifies how supply chain management teams have responded to COVID-19 disruption and how they manage operations. We discuss some of the changes that are unfolding and how supply chain management teams are reacting.

Operations

In a study of 122 businesses, in terms of channels serviced, wholesale remains the most common channel, addressed by 62% (up from 58% last year). However, retail dropped from a 60% response last year to 37% this year. The biggest positive trend is that 30% now have an omni-channel operation, up from 20% in 2019.

Increased complexity from omni-channel operations has caused businesses to expand into more warehouses. When asked about the number of warehouses in their network, the businesses showed that 46% have more than three buildings, compared to 36% in 2019.

Having more warehouses distributed across your market will increase the agility and reliability of your supply chain. When inventory spikes or changes in distribution occur, agile supply chains are able to absorb the risk and continue to operate smoothly.

When asked how multiple channels are being fulfilled, 36% say they self-distribute from separate DCs for different channels, up from 20% last year. 

Distributing using multiple 3PL partners leads to inefficient management long term. As a supply chain manager, having countless contacts, invoices, and reports to manage is cumbersome. To simplify supply chain operations, some companies are starting to work with a single partner who sources facilities and manages supply chain operations.

Systems and technology

When asked about data collection methods, the survey also found that 63% collect data automatically from a WMS. 43% of companies still use manual data collection methods.

A lack of supply chain data visibility can not only hold a business back operationally, but it can be catastrophic if issues arise that were overlooked due to lack of data. Productivity is lowered when businesses use manual processes. Time that could be spent on valuable tasks is instead spent on processes that could be automated like reporting and data collection.

Given the challenges facing supply chain managers, the average capital expenditure budget for technology reached $1.45 million in 2020, up from $1.27 million last year. 

“Continued technology investment should help DCs leverage metrics to help manage operations”, says Roberto Michel from publication Modern Materials Handling.

What happens next?

Supply chains will continue to get more complex, which means the stakes are getting higher. Not only does an issue in your supply chain cost more in terms of profit loss, but customer satisfaction lowers too, because they don’t get the service that they are expecting. Agility and technology capabilities must increase alongside advancements in volume.

We could also see disruptive changes continue to rapidly occur. 

For example, Don Derewecki, a senior consultant with St. Onge Company states that “the acceleration in e-commerce this year is furthering the trend toward higher levels of automation and information systems support.”

Want to learn more about how supply chain network design impacts business risk? We recently wrote this article over dynamic warehouse networks.

Subscribe to our blog

Get new posts delivered to your inbox.

  • Should be Empty: