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How a Real-Time Inventory System Helps to Overcome Supply Chain Disruptions

Posted: March 05, 2020 by Ly Phan

How a Real-Time Inventory System Helps to Overcome Supply Chain Disruptions

As we enter a new decade, the world is facing some unprecedented challenges. The US-China trade war is entering a second, delicate phase, Brexit continues to cause uncertainty, and now COVID-19 is spreading to every continent bar Antarctica. The onus for businesses in supply chains to have a real-time inventory system in place to mitigate the worst effects of disruptions. 

In the light of COVID-19, managing supply chain disruption has taken on an added urgency. However, businesses need to be prepared for the unexpected at all times and in this post, we will detail exactly how to do it. 

 

Supply Chain Challenges

A significant factor in global supply chains is the role of China’s manufacturing prowess. Within a decade from 2010 to 2018, the value of its output has more than doubled to $4 trillion a year. To put it in perspective, China accounts for 28.4% of the world’s manufacturing output, with the United States taking second place at 16.6%. Significantly, Japan and South Korea also occupy the top five spots, with Germany taking fourth place. 

The increasingly connected nature of supply chains means businesses are now more exposed to world events, including COVID-19. For instance, the global retail supply chain has a 20% exposure to China alone. The knock-on effects are numerous, and each can have a dramatic impact on your business. 

 

Logistics

One of the first areas to feel the impact of supply chain disruptions is logistics. As the world becomes ever more connected, the consequences of delays can be significantly magnified. For example, the crisis in the Persian Gulf during the Summer and Fall of 2019 drove up oil prices, as well as causing supply routes to be rerouted around Africa.  

The ramifications were felt far and wide, with rising insurance premiums and costs incurred by shipping companies being passed on throughout the supply chain. Contingency plans for these regional flare-ups, particularly in the Middle East, should be built into the business model, but they are nonetheless disruptive. 

Another issue for retailers and distribution centers is the lag time it takes to receive the products from manufacturers. According to the Harvard Business Review, it takes an average of 30 days for packages to reach Europe and the United States from China. As a result, some of the consequences of global events can be delayed.  

Managing those delayed reactions requires a proactive approach and analytics. By understanding the challenges facing shipping during such events, managers can stay ahead of the game and arrange alternative sources for supplies. 

Solution: A crucial part of maintaining smooth logistics operations is strong communication, both internally and externally. With clear communication channels, stakeholders will be able to access information such as shipping status quickly, location of shipments, and identify any delays. 

For example, if a manufacturer is experiencing production delays, communication with the logistics company can avoid unnecessary journeys and allow customers to find alternative sources. By using a 3PL warehouse management system, businesses can use technology to manage operations with a higher degree of flexibility and efficiency. 

Technology can also be used to identify efficient alternative shipping routes when required quickly. Using the data and analytical power of software, managers can promptly rearrange delivery schedules and update their customers.  

 

Maintaining Supplies 

Being the central purpose of the supply chain, managing stock levels can be challenging in normal times. During a crisis, that challenge is multiplied with companies racing to get the parts or products they need as supplies run low.  

Stockouts are costly for supply chains in a number of ways:  

  1. Production Delays: Without key parts, manufacturers can experience production bottlenecks, leading to significant delays. British carmaker Jaguar was forced to use suitcases to fly parts in from China during the outbreak of COVID-19. The lengths a major international brand would go to avoid such delays are illustrative of its potential costs. 
  2. Supply Chain Disruptions: Aside from production delays, the knock-on effect of stockouts can be felt across the supply chain. Logistics companies would need to reschedule and adjust routes, businesses can run out of inventory, and stores face empty shelves. The chain reaction can quickly spread and grow out of control. 
  3. Dissatisfied Customers: At the end of the supply chain, stockouts will lead to unhappy customers. Even in regular times, stockouts cost retailers up to $1 trillion a year globally - without major disruptive events like COVID-19. During moments of crisis, shoppers may be more forgiving, but if they can get their products elsewhere, they will.

The three factors underline the importance of maintaining the supply chain and holding enough safety stock for unexpected events. By diversifying suppliers geographically, businesses can mitigate the worst effects of bottlenecks and develop contingency plans for such events.  

Solution: Firstly, wherever possible, have at least more than one supplier for individual products. By diversifying sources, businesses immediately have an insurance policy against unexpected events - whether they are global, such as natural disasters or local, such as a warehouse fire.

Secondly, inventory management software is an invaluable tool in mitigating supply chain issues. By bringing together all the elements of inventory control, managers will be able to have a complete overview of operations. Businesses will then have the ability to forecast supply and demand in real-time accurately and have the necessary information to be able to respond to events with maximum efficiency. 

 

Price Fluctuations 

An unfortunate by-product of supply chain disruptions is price fluctuations. This can be down to a vast range of factors such as climate change affecting harvests, terrorism driving up oil prices, and trade disputes leading to tariffs.  

A good example of how climate change can impact prices can be seen in the challenges facing coffee growers. More than two billion cups of coffee are consumed every day, yet the industry is reliant on just a few areas of the world where the crop can be grown. Due to a variety of factors, including global warming, three out of the five coffee varieties are facing the threat of extinction.  

This will lead to limited supplies and rising prices, which is then passed on through the supply chain. However, with these long-term issues, it’s possible for businesses to take steps to prepare and mitigate the worst effects. Additionally, companies can plan for more sudden events, like the issues at the Strait of Hormuz in 2019. Often, warning signs can be seen before with proactive monitoring and research. 

Solution: This is an area where the power of data and analytics is evident. Businesses can use the latest cloud-based software to forecast trends and identify the best times to buy products. Clients such as logistics company, Argent Associates have been able to use SmartTurn’s solution to save up to $15,000 a month in supply chain efficiencies. 

Communication with suppliers is also essential, particularly relating to materials and crops. Do the research and ensure your business works with sustainable partners who look after the products. In the grocery sector, it’s also essential to make sure the farmers and distribution centers handle goods in line with standard practices, reducing the risk of contamination and disease. 

 

Be Prepared 

When it comes to supply chain disruptions, the key is to be prepared before they happen. In this post, we’ve detailed several actions businesses can take to mitigate the impact of such events - including communication, utilizing the power of data and analytics, and real-time inventory tools to improve visibility. 

However, the number one way to be prepared for disruptions is to have multiple suppliers for products. Spread geographically, companies will be able to manage the inbound and outbound logistics process with flexibility. Using SmartTurn’s cloud-based software, managers will be able to respond to events quickly, switching vendors rapidly and efficiently. 

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