In this article, NewPower explores some of the key reasons supply chains can fail, from external factors beyond a manufacturer’s control to internal mistakes
Offshoring
Offshoring has become increasingly popular but supply chain management can be challenging due to time zones, language barriers and cultural differences. Also, monitoring offshore activities requires skills and expertise that may not be readily available. Offshoring requires robust monitoring systems and regular communication to ensure successful supply chain management.
Complexity
Globalization and interconnectivity have led to increased complexity, with multiple suppliers, subcontractors and intermediaries involved. This complexity can create a lack of clarity and communication, leading to issues like delays and quality problems, ultimately causing complete breakdowns. To mitigate these challenges, effective supply chain management and coordination are necessary. Regular communication, sharing of information and collaboration are vital in ensuring all stakeholders understand their roles and responsibilities, setting clear expectations, quality control measures and effective monitoring systems. By promoting transparency and strong relationships, businesses can reduce complexity and foster more efficient and effective supply chains.
Cost pressures
Companies constantly face cost pressures that drive them to cut costs, but this may lead to compromised quality, damaging reputation and customer loyalty. Cutting corners in production, outsourcing to low-cost countries or using cheaper materials may result in substandard quality products that lead to customer complaints, recalls and increased cost of doing business. Lean production and efficient supply chain management can help identify and eliminate waste, inefficiencies and reduce inventory costs to achieve cost savings while maintaining quality standards. To ensure quality standards, companies can work closely with suppliers, choosing those with a good track record for quality, setting clear quality control parameters and providing adequate training. A balance between cost pressures and quality standards is necessary to protect customers’ brand reputation and maximize profits in the long run.
Geographic clustering
Geographic clustering of companies within a specific area can be beneficial but also poses risks, such as vulnerability to localized disasters/conflicts. Natural disasters/regional conflicts can disrupt infrastructure, transportation and power supply, causing significant delays in production and delivery. Moreover, multiple companies in a supply chain within an affected area could experience a domino effect leading to industry-wide disruptions. To mitigate this challenge, companies can implement proactive risk assessment and contingency planning, build supply chain redundancy by sourcing from multiple suppliers and strengthen ecosystem relationships with other manufacturers. Effective implementation of these measures can secure manufacturing processes, minimize disruptions and achieve higher levels of resiliency.
Just-in-time production (JIT)
Just-in-time production is a popular manufacturing strategy that reduces inventory costs and waste by producing goods only when needed. JIT systems allow quick adjustments to production schedules in response to fluctuations in demand, aiding companies
to recover faster from supply chain failures. By prioritizing available materials, JIT reduces waste and minimizes the need for inventory holding. However, to succeed with JIT, companies must establish strong relationships with suppliers to ensure materials are always available when needed and minimize the risk of supply chain disruptions. Strategic planning, good communication, cooperation and investment in robust infrastructure are key to success with JIT production methods.
Dependence on multiple suppliers
Dependence on multiple suppliers is a strategy that seeks to reduce supply chain vulnerability by sourcing raw materials or components from different suppliers. However, it has its own set of challenges, such as an increase in the complexity of the supply chain, difficulty in maintaining consistency in quality and cost, and the creation of additional vulnerabilities. To mitigate these challenges, establishing clear criteria for selecting suppliers, agreeing on quality standards, monitoring supplier performance
and maintaining strong relationships and effective communication with suppliers are suggested. A balanced approach is critical in reducing overall vulnerability while managing multiple suppliers.