A company's supply chain comprises a multitude of logistical, operational and administrative processes from the time a customer places an order until it is delivered, making it a complex operation in which problems can obviously arise.
All companies can suffer this type of disruption, which undoubtedly represents a potential risk. But this risk is not the same in all cases, nor are all companies equally prepared to face them. It is therefore necessary to know how to measure the magnitude of the problems and the adaptive capacity of the organization to overcome them.
IT failures, delivery delays, quality deficiencies or unexpected interruptions in the production process are some of the incidents that can negatively affect the supply chain. But external factors such as those that depend on suppliers, natural disasters, labor conflicts or even specific political situations can also affect the supply chain. All of them have an impact on supply, and can affect to a greater or lesser extent and cause economic losses. That is why it is so important to be prepared and, above all, to have plans that can mitigate the effects that these unforeseen events can cause.
What issues can we find in the supply chain?
The first step to be prepared is to identify and know the risks that the company may encounter and the incidents that may arise along the supply chain. It should be borne in mind that there are internal risks, which depend on the company's own activity, and external risks, which are beyond its control, and therefore it is not possible to act in the same way in the face of one as in the face of the other. All these risks entail possible incidents which, broadly speaking, can arise at four critical points:
- In procurement: issues may arise regarding prices, product quality, supplier availability, delivery times, transportation, customs or labor disruptions.
- On the demand side: these are risks related to forecast errors, delivery delays, quality, loss of customers, guarantees.....
- In internal processes: incidents that have to do with the way the company operates and that may arise due to failures in information, inventory management, customer service, planning...
- In the environment: these are external risks that can affect the supply chain without the company being able to control them, such as changes in legislation, international regulations, customs formalities, natural disasters, politics...
Within this classification, we can summarize the incidents that can most directly affect the supply chain as follows:
- Lack of quality: the more complex the supply chain is, the more factors are involved and the more complicated it is to ensure that all products meet the required quality standards. Any failure in this aspect can result in the product delivered to the customer not being as expected or being defective, with the loss of image that this entails for the brand and all the problems it generates in terms of returns, replacements, traceability of the error...
- Inventory failures: maintaining sufficient stock to meet the company's demand is a very complex process, which requires forecasting, establishing safety margins, keeping an exhaustive control... Any incident can cause a break in stock that prevents meeting customer demand or causes delays.
- Delays: there are many incidents that can affect product delivery times, from human errors in time management during production to incidents or traffic jams that delay transportation.
- Losses during transport: the movement of goods is one of the most critical points in the supply chain, as they can be lost or have accidents that result in the product being destroyed.
- Cybersecurity issues: in a digitized world like the one we live in, we are exposed to cyber attacks and other technological problems that can jeopardize the entire supply chain by losing data, orders, records and dates.
- Problems with customs: in an international and globalized context, we depend on customs controls, and any incident arising in this regard can delay our supply chain.
- Economic crises: fluctuations in the economy affect all companies, and therefore can pose a danger to the logistics chain, as it can affect the company's suppliers or operators, make raw materials more expensive, reduce the number of customers...
- Political crises: the measures taken by different governments have a very direct impact on the way all companies operate and can therefore affect the entire logistics management and supply chain. Measuring the potential problems that may arise is essential, but politics is unstable and unpredictable, which can lead to many incidents.
- Natural disasters: these are totally beyond the company's control, are very difficult to foresee and can have devastating consequences, and are events that can seriously endanger companies. The only option is to foresee the possibility of this happening, and to have plans in place to remedy its effects should it occur.
How to manage incidents?
As we can see, the incidents that can arise throughout the supply chain are many and varied, making it very difficult to manage them all. There is no magic formula to solve all the problems that may arise, as each one will present a different problem and will require specific measures. However, the most effective way to ensure that these incidents do not affect our supply chain too much is to be prepared.
First of all, it is necessary to identify all the risks that the company runs, to think about the incidents that may arise, and then to take a qualitative measure of these risks, measuring the magnitude they may have and how they may affect the supply. Once the possible incidents have been identified, it will be necessary to develop response plans that indicate what to do in each case and make clear all the actions to be carried out if an incident occurs, in order to resolve it in the most efficient way and in the shortest possible time. This is what is called a contingency plan, and its objective is to ensure the continuity of operations in the event of a failure and minimize the possible economic or reputational impact that this may have on the company. In addition, it must be ensured that the company has the necessary resources to implement such a plan if necessary.
Although, as we say, there is no magic formula to avoid all unforeseen events, companies can follow a series of tips to minimize the probability of their occurrence:
- Having maximum control of the supply chain: supply chain managers must have all the information on what is happening, in order to know what is happening at all times and make decisions that can avoid incidents if there is a failure. It is also very useful to know the background, to be warned about what has already happened and to know how to solve it if it happens again.
- Efficient inventory management: having an adequate balance between demand and supply is essential to avoid stock-outs that cause incidents.
- Be predictive and assertive: making long-term predictions about production and distribution processes can lead to faster and more assertive decisions that improve performance in the supply chain.
- Betting on technology: we have many tools that can facilitate the work, make artificial intelligence predictions and eliminate the factor of human failure during the supply chain, so technology can help to avoid and resolve incidents.
- Having qualified personnel: the more qualified the workers are, the more they will know the supply chain and the better prepared they will be to avoid failures or deal with problems that may arise.
Preparation, therefore, is the key to being able to manage all incidents that may arise after the fact. Having an adequate strategy to avoid disruptions in supply logistics operations is key to meeting customer demands, reducing costs and improving efficiency. If companies do not take these risks into account and dedicate time and effort to analyze and measure them, they may be signing their death warrant.
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