7 Ways Businesses Can Manage Supply Chain Shortages in 2022
With 2021’s holiday shopping season behind us, supply delays, logistics constraints, and inflation loomed over shoppers and retailers—and the manufacturers and distributors who keep them in supply.
The supply chain shortages from 2021 remain the story of our lives today, as the enormous bullwhip effect of COVID continues.
Much of the world is clamoring for finished products from their usual suppliers; but dwindling cargo space, skyrocketing transportation costs, and component delays make it difficult to keep shelves stocked.
Here are ways smart supply chain planning can help you minimize those post-pandemic shortages while still meeting your business objectives.
Why Are There Supply Chain Shortages to Begin With?
Everyone is asking, “why can’t I get my stuff?”
In layman’s terms, COVID-19 demand changes hit manufacturers and retailers hard, and they had to drastically cut production and sales.
Shipping providers also slashed capacities. In fact, 94% of Fortune 1000 companies are seeing supply chain disruptions due to COVID-19.
But not all demand fell off during lockdowns—while people were at home, demand for some items surged.
And now that many economies are opening up, supply is backed up due to constrained ports and transportation, and panicking businesses are ordering many times the supply they actually need—hoping at least one supplier will be able to deliver.
This continued amplification of supply chain variability and inefficiency causes massive inventory waste and supply chain shortages.
7 Practical Strategies to Minimize Risk and Manage Supply Chain Shortages
When facing the uncertainties that surround supply chain shortages, remember: You’re not alone.
The following strategies, based on data, analytics, and collaboration, are helping planners around the globe overcome a disrupted supply chain.
1. Use analytics to put your available inventory to the best use
Chances are you do have some inventory–make sure it’s being put to the best use with automation and data analytics.
This is where an advanced supply chain planning system can really shine, by allocating the stock you have on hand according to your business goals, such as profitability, sales maximization, or gross margins.
In more buoyant times, companies are often optimizing inventory to reduce cost or maximize revenue to grab market share.
In the current climate, with severe supply shortages, companies are interested in optimizing for margin. You can also detect and correct possible stock imbalances by re-distributing excess stock in the network to other locations.
2. Get your product portfolio in shape
When COVID-19 hit, manufacturers scrambled to meet demand, but there was a nasty surprise in store in the form of a radical shift in consumer buying patterns and behaviors.
This demand shift presents a unique opening to rethink your product portfolio and rationalize it to ensure you’re focused on the more critical subsets.
Here are some places to get started:
- Identify the products that are surging in demand versus dwindling
- Determine the strategic value of each product in your portfolio
- Assess potential opportunities to collaborate with business partners to bring new products to market
3. Minimize risk by re-evaluating the supply you’re ordering
There’s no guarantee that the supply you normally order will be available, so it pays to be smart about what you order to maximize service and profitability.
- Analyze which supply orders will contribute to higher margin sales, which are most likely to sell, or what’s needed to fulfill backorders quickly.
- Evaluate equivalent items that may be good substitutes for those in short supply. You may be low on Item A, but Item B is an equivalent alternative item available to order. This tactic is ideal for lower margin, commodity type items–not for higher margin, specialized items.
4. Stress-test supply chain using sales and operation planning scenarios
Scenario planning is nothing new to businesses, but when major supply shortages occur, it’s both highly and newly relevant.
- Ensure your supply chain is ready for the next crisis is to test its resiliency by leveraging digital S&OP tools. With the right simulation tool in place, your S&OP team has increased visibility to make “on-the-fly” calculations. This data-driven approach will show the supply chain and P&L impacts for a variety of scenarios including price increases, promotions, purchasing requirements, and production plans.
- Create new scenarios to address inbound import shipments stuck in ports with parts, components or finished goods by shifting suppliers from Asia to other locations–the possibilities are truly limitless. Considering the increased timeline for manufacturers to receive deliveries, this element is more important than ever in planning for supply chain disruptions.
5. Use demand shaping tactics to nudge customers to available products
During times where managing supply shortages is critical to business survival, cross-functional collaboration is key to customer satisfaction.
Supply chain, marketing, merchandising, and advertising professionals who work together can proactively “shape” demand toward available products or those that can be delivered within customers’ expected lead times.
- Consider different prices, promotions, and other incentives during your retail planning process. Retailers who create a waitlist for their high-end products may leverage shortages to their advantage, using exclusivity to justify higher prices.
- Consider changes to your product portfolio to favor available supply, and to identify similar replacement materials which can be used as alternatives to your normal supply orders.
6. Incorporate production planning to adapt to supply disruptions
The impact of current material shortages is compelling companies to re-evaluate their production strategy.
Planners can use production planning to adjust to uncertain supply by pre-purchasing supplier bill-of-materials components with the longest lead times, or partnering with suppliers to identify components with the extended lead times or high supply uncertainty.
7. Reduce the risk of supply chain shortages by embracing uncertainty
The demand-driven forecasting commonly used today is heavily focused on forecast accuracy.
These forecasts are directly responsible for how organizations plan production levels and guide the very core of their supply chain planning–despite the fact that the demand forecast is always wrong.
Probabilistic forecasting is different. It takes uncertainty into account and provides all the potential outcomes as probabilities that may occur. This way, not only are your odds of getting it right much higher, costly, high-risk scenarios can be identified before it’s too late.