Supply Chain Disruptions: Preparing for the Unexpected
Whether it’s unpredictable weather, a natural disaster, sudden adjustments to trade policy, product malfunctions or unanticipated sales spikes, disruptions to businesses come in all shapes and sizes. With available technology, logistics expertise and supply chain data, one might think that the logistics industry has significantly reduced the number and frequency of possible supply chain disruptions. However, according to global supply chain disruption monitoring company Resilinc, the number of global supply chain disruptions increased by 36 percent in 2018. Why?
- businesses’ supply chains are more complex than ever before; and
- logistics operations involve circumstances that are impossible to predict.
There will always be disruptions. However, without a plan — and a plan B — margins are jeopardized and business can be chaotic. Retailers need end-to-end visibility and flexible logistics solutions so they can strategically prepare, adapt and respond when the unexpected occurs. Here are three common disruptive scenarios and proactive strategies businesses can adopt to prepare for them.
Scenario 1: An Unanticipated Sales Spike
An unanticipated spike in sales is the best kind of disruption, but a disruption nonetheless. Whether it’s an unexpected celebrity endorsement, a competitor misstep, or groundbreaking research related to your product, there are many external drivers that could cause the surprise surge. If ill-prepared, retailers can find themselves unable to meet demand, let alone cultivate and groom long-term customer relationships with enthusiastic buyers. Gearing up for planned promotions or peak seasons is tricky enough; planning for an unanticipated sales spike is an entirely different animal.
So, what can you do to prepare for the moment when orders suddenly spike through the roof?
- If you haven’t already, double-down on omnichannel before a disruption occurs. Ensure you can communicate a clear delivery promise so customers understand their delivery options. In the event of an unanticipated sales spike, they may not be able to have it delivered by tomorrow, but perhaps they could find the closest place to pick it up in-store instead.
- Establish a clear line of communication about inventory. Arm customer support and staff members with real-time information about inventory levels so they can best serve customer needs.
- Consider running a pilot sales surge as a means to “stress test” your supply chain. The best way to evaluate the efficiency of your fulfillment process is to measure its actual performance in practice. This also presents a unique opportunity to identify and address areas for improvement in a low-risk context.
Scenario 2: Weathering the Storm
There are few things as unpredictable as the weather. We’ve all witnessed and experienced the impact of winter snowstorms, hurricane season and other unexpected climate patterns. Supply chains feel it too. In fact, according to Resilinc, extreme weather and natural disasters were the single most impactful event type of supply chain disruption in 2017 and 2018.
While you can’t always know exactly where and when a crisis will strike, you can take precautionary steps to prepare for the worst. First, proactively front-load inventory in high-risk weather zones, such as the U.S. Southeast corridor for hurricane season and the East Coast and Midwest for winter storms. In fact, Ace Hardware adopted this approach ahead of the 2017 and 2018 hurricane seasons. As a result, it was able to stage generators, propane tanks and other emergency-relief inventory in Florida, Texas, and Georgia ahead of the hurricanes that ensued. Second, lean into short-term storage and on-demand logistics solutions to decentralize your inventory. By placing multiple stockpiles of goods closer to communities, you’ll set yourself up to respond to a weather incident quickly.
Scenario 3: Product Problems
Food, toys, clothes and furniture are just a few examples of compromised inventory recalled this year — and it’s only Q2. The negative repercussions of a defective product cannot be overstated. In the unfortunate event that you find yourself in the thick of a product recall crisis, your supply chain could be the difference between bouncing back or further aggravating the situation.
Most logistics infrastructure today is fairly complex. Typically, companies work with different warehouse providers or 3PLs to move goods from point A to points B-Z. This also means that it can be incredibly difficult to get a clear picture of all the moving pieces. In tandem, deviations can occur at any point throughout the supply chain. Complexity, without visibility and flexibility, is costly. Kiplinger reports the total cost of the top 10 recalls in recent history amounted to nearly $74 billion.
Executives today must ensure structural flexibility is a top priority across their entire organization. Logistics, marketing and product teams should be aligned and prepared to react in the event of a product deviation. This includes having a plan in place to pause ongoing or planned promotions of a corrupted product, delaying shipments, issuing swift communication to impacted customers, and quickly turning on additional warehousing capacity when they need it most. In order to do so, they should be aware of the resources and partners available to them — e.g., having a specific recall vendor in place before you need it or an action plan for overflow inventory.
Even with careful, proactive planning, supply chain disruptions are inevitable. Late delivery? Item out of stock? Product back-ordered? When all else fails, remember to prioritize the customer relationship over the transaction. Surprise-and-delight tactics can go a long way in preserving customer loyalty, especially when there’s a bump in the road. As the great philosopher Mike Tyson once said, “Everybody has a plan until they get punched in the mouth.” Supply chain leaders must find ways to make their logistics strategies more flexible so they can prepare for and adapt to whatever punch comes next.
Karl Siebrecht is the CEO and co-founder of FLEXE, a provider of on-demand warehousing, fulfillment, and logistics services to retailers and brands.
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