Disruptions in the supply chain have far-reaching consequences. From raw material extraction to delivery of products to customers, supply chains consist of many processes and steps. Even a small delay can be enough to affect the entire supply chain – leading to production and shipping delays, high costs, backlogs, dissatisfied customers, disgruntled managers, and employees. Because of this domino effect, it’s important to identify potential bottlenecks within the supply chain so they can be addressed quickly. Even better, prevent them before they occur.
There are numerous reasons for supply chain problems: External factors beyond one’s control, but also home-grown ones. In addition to price increases and shortages of raw materials or key components, which are the main cause of supply chain problems, the war in Ukraine and reduced transport capacities also play a role. In addition, there is a shortage of skilled workers, higher energy costs and inflation. But poor warehousing practices, inefficient operations, poor inventory management, lack of visibility and limited resources also have a profound impact on the supply chain.
Every company and supply chain are unique. Actions purchasing managers take can span the entire supply chain or single out individual steps. The best way to identify bottlenecks in the supply chain is to have a clear overview of operations. This can be done with the help of simulation models. By simulating business processes, it enables you to answer “what-if” questions and create “to-be” scenarios. Ultimately, this reduces costs and conserves resources because the simulation results allow you to focus efforts on the most promising measures for your business.
Once you have identified your weak points, there are numerous measures you can take.
Create agile processes
Unfortunately, some bottlenecks are unpredictable. The last few years have taught us to expect the unexpected, so just having an overview of your processes is not enough. For agile supply chains, you need to gather the most relevant and up-to-date information, share it quickly, and be able to act on it. Agile organizations invest in new technologies and data-driven processes that enable them to have comprehensive control. This allows important spontaneous decisions to be made quickly and soundly, where before it was often the gut instinct of purchasing managers.
Automate manual processes
In most cases, bottlenecks occur when an action must be completed manually before it can move to the next phase. These can be simple tasks like granting approval or moving information and data from one system to another. Tasks that can be usefully automated include.
- Stocking and staging raw materials, products, and components,
- ordering raw materials, products, and components when inventory is low or demand is predicted to increase,
- the planning and coordination of shipments,
- processing customer orders, invoices, and shipping documents.
Analyze your data
To a large extent, enterprise data sits idle on servers in the cloud. That’s why investing in data analysis tools can prove to be useful when it comes to addressing supply chain bottlenecks. For example, they can monitor inventory levels, identify patterns in customer behavior, or make predictions about supply chain disruptions and changes in consumer behavior based on historical supply chain activity. Insights gained from these activities can help pinpoint specific bottlenecks, provide guidance on how to fix them, and prevent the same problems from occurring again in the future.
Ensure transparency
When you have a clear view of your operations and vulnerabilities, make sure it stays that way. Poor information flow or a general lack of transparency are common causes of supply chain problems. Transparency throughout your supply chain helps address any bottlenecks and identify their root cause. Transparency prevents making the same mistake more than once and ensures continuous improvement, so you can be sure that your business processes are always optimal.
Go for multiple sourcing
For critical raw materials, products and components, a multiple sourcing strategy usually makes sense. This allows you to react flexibly if one source of supply fails, and at the same time gives you greater negotiating power. Since your supplier also benefits from the fact that you buy from him, he will try to fulfill your wishes and requirements – even in difficult situations. As a rule of thumb, a company’s purchasing volume from a supplier should not exceed 10-15% of its sales, otherwise the mutual dependency becomes too great. In unforeseen situations such as environmental disasters, a fire or a pandemic, the supplier’s production can come to a standstill, causing significant problems for the company if no other source is available.
Any disruption to a supply chain can have far-reaching effects on your business, including lost sales, damaged reputation, and disgruntled customers. The measures described will help you avert failure and position your company for future success and new opportunities, especially with competitors or suppliers.