Supply chain disruption – 3 lessons learned from past trends

Supply chain disruptions are business disruptions. There is no portion of the business that is isolated from interruptions upstream or downstream in the supply chain. As SCM become more strategic in business planning, we gain a deeper understanding of how challenges and opportunities in the supply chain can impact the overall performance of the business.

1. You are only as strong as your partners are!

Supply chain disruptions are rarely under the control of business operations or supply chain executives. Oftentimes we build partnerships to help us plan for the future and put our trust in companies to support our supply chain goals.

“Freight is the heart of supply chain management. Without the ability to quickly and effectively move merchandise around the globe, the business’ ability to succeed is limited”

Global companies agree to large ocean freight contracts to stabilize yearly transportation costs, and have a baseline budget for their expected TEU transportation.

Most SMBs will likely use an NVOCC for this service; this means that a 3rd party forwarder handles all the company’s documentation and freight arrangements door-to-door. Such a practice puts SMBs at a disadvantage which became very clear during the demise of Hanjin Shipping Line. Without their knowledge, many U.S. businesses found their merchandise on Hanjin vessels due to decisions made by their NVOCC. According to SeaIntel, at the time that Hanjin filed for bankruptcy protection, the company had 43 vessels in transit with 540,000 TEU of cargo on board.

Given the time of year, the merchandise on board of the ships was planned inventory to service the U.S. and other global consumers during the 2016 holiday season. One way in which larger businesses can protect themselves from such disruption is to take this decision in-house and assign a responsible party to manage their logistics network. In this case, companies can go directly to the shipping line and negotiate long term contracts at fixed rates. Companies should fully research the shipping lines they contract with and their terms of service. Generally, there is a high TEU requirement for competitive rates and this can often backfire if the logistics team chooses a poor partner.

2. Useful, accurate predictive analytics are key 

Data from the closing of 2016 shows that retailers had increased faith in consumer spending during the holiday season, and accordingly, increased inventory holdings in the last quarter. The National Retail Federation states that the year-end increase in import volume came as a surprise to many in the retail industry. The NFR raised its forecast to a 7% gain at major U.S. ports, from 3.2% in an earlier report, while November imports rose 11.2%, beating the prediction for a 3.6% year-over-year gain.

For manufacturers and wholesalers, customer trends often include paying close attention to the retail channel as well. Very aggressive sales and inventory management trends from Amazon, and other e-commerce retailers, created market disruptions driving many brick and mortar shops out of business. Their aggressive practices continue to take markets by surprise.

“Staying ahead of customer trend curve-balls requires alignment and communication”

At the end of 2015, days before Black Friday, Amazon reconstructed their inventory management strategy, significantly shortening their days of inventory on hand. This was a strategic move enabling the company to release cash at the end of the year, and force their vendors to enter a vendor-managed inventory system within a few weeks.

Amazon, Alibaba, and Ebay changed the way end consumers search for products and make purchases. Companies have to be prepared for last minute decision-making and must have flexibility in their supply chain to deal with spikes in demand or disruptions upstream.

Understanding shifting consumer behaviors is not a one-time effort, and must be ongoing. Successful organizations are proactive in learning about their customers’ needs and prepare to meet them ahead of time. It is imperative that this effort be shared across the organization to connect knowledge from the sales team to the supply chain.

3. Your supply chain must be flexible enough to adapt

For operations professionals, the constant goal is to continuously improve on previous processes and recognize tangible cost savings. In business, however, we cannot operate in silos. Our planning and preparation can only solve for a certain percentage of all the processes covered globally. To prepare for events such as the disruptions listed above, a company’s supply chain must be flexible and the managing team must have the tools to make last-minute well-informed decisions.  A flexible supply chain should be able to detect and respond to issues and opportunities in the short and long-term with the best choices for the business.

Understanding and preparing for operational challenges is crucial to growing a successful global brand. 

Strategic planning can make the difference between hitting the mark on profitability and customer service and failing to compete in the global marketplace. Understanding the sources of disruption in a company’s supply chain makes the operations team indispensable in drafting future growth and driving strategy to support this.

This article first appeared on TradeReady the Blog for International Trade Experts.
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