What is a resilient supply chain?
A resilient supply chain is one that is able to adapt quickly to changing times. Whether it is a global pandemic, warehouse flooding, cargo ships catching on fire, or an invasive gypsy moth nest in your inventory, a resilient supply chain can help you adjust quickly and effectively to unexpected issues.
We’ve compiled some advice on best practices to help you mitigate these issues and build a resilient supply chain. We’ve outlined below how to build a nimble and responsive supply chain.
A key strategy in supply chain is to limit the reliance on a sole supplier. This sort of dependency puts you at risk to absorb the challenges faced by the vendor such as factory shutdowns, over capacity, or regional delays. Having alternative options also helps you stay competitive with costs and production requirements like MOQs and case packs.
The ability to spread manufacturing is crucial for both finished goods and raw materials. Take careful steps to track the origin of supply for your goods and set up alternatives for each tier. Consider implementing a risk index to score your options. Risk indexes can take into account variables such as timing, quality, opportunity cost, and impact to your current operational process.
Another scoring method useful in allocating parts of your supply chain is a vendor score. This is similar to a risk index, but it is on a vendor level. A vendor score can also include the general responsiveness and ease of communication from the supplier as a metric.
In the case of pandemics, if you’re unable to get in touch with your suppliers you might be able to find helpful information online to guide your decision making. Look for regional information by industry, goods category, and shipment/customs updates. Additionally, if you know any other brands serviced by your suppliers, try getting in touch with them as they may be willing to share insights especially in times of need.
Strong vendor and partner relationships
Fostering a strong relationship with your vendors will allow you to have flexibility in times of need. With a strong relationship, in times of need you can ask for extended payment terms, shared risk scenarios, or in some cases prioritization of goods production. Honest communication and proper tracking will inform you of any excess capacity available whether through your own production lines or those dedicated to other companies.
In the case of excess capacity, carefully assess various scenarios, taking into account any impacts to operations or profitability and finance. If you find yourself in the inverse situation with limited production capacity, compare the opportunity costs associated with your assortment and prioritize production accordingly.
In the face of adversity, look to minimize, eliminate, or defer any nonessential purchases in place. This can result in immediate cash relief back to your business. Alternatively, if you are in a healthy cash position, you can request pre booking of capacity to minimize future competitive risks or to lock in costs.
Building strong partnerships goes beyond your suppliers. If you find yourself in a shortage and have wholesale or retail partners, consider requesting a stock buyback opportunity. In some cases this will benefit the customer if they are overstocked, shut down, or in the need of cash. You can always incentivize this opportunity with commitments at a later time such as reduced costs, special marketing, etc. Carefully consider the opportunity costs associated with this strategy.
Shortening lead times
Improving lead times is dependent on accelerating where possible. This can be in manufacturing and transit of components as well as finished goods. This can be done through excess capacity or infused resources. You can also consider re-manufacturing goods that didn’t make it down the supply chain. For instance if the supplier is holding on to goods that didn’t pass quality control, assess the ramifications of putting them back in the line for correction.
Beyond manufacturing, lead times can be shortened through post production time spent in transportation, customs, and duties. Calculate costs associated with various modes of transportation, and compare against the risks associated.
Quick-reacting demand forecast
With volatility in demand and supply, strength and agility in forecasting will be crucial to the long term success of your business. First, determine what your strategy should be. Understand the level of granularity needed and timelines you are being held to both as a business as well in your supply chain.
Second, be aligned on cross-functional strategies. What does communication to the customer entail? Which products offer the highest strategic value? From here you’ll be able to determine and communicate any urgent needs.
Beyond those, you’ll want to understand if the demand you’re seeing is a signal of long term or short term behavior. Is what you’re seeing a result of the macroeconomic environment? If so, what changes can you expect as that factor changes? Research market insights to understand product specific behaviors.
To ensure you’re able to pivot, set up dynamic reporting to highlight demand variances to plan. An agile and open internal business system can allow these insights to flow appropriately.
Finally, take a look at your wholesale partners. Are there any insights on their performance either internally or shared publicly? Having an omni-channel understanding of your demand can help inform business strategies.
Forward-looking weeks of supply
Most companies use a backwards-looking weeks of supply (WOS) target. Essentially, they get the average of the last 16-32 weeks of sales, and then multiply that with a growth factor forward. We don’t believe that this is the best way to forecast.
In Fuse, we use predictive analytics to project your true demand based on your volume and mix seasonality. Using a forward looking WOS will help position you for your variable demand.
Dealing with overstock and understock
We recently published a guide on how to manage undesirable inventory. Check it out here.
Visibility across the supply chain
Whether it is using a supply chain platform like Fuse or a robust analytics solution like 42 Technologies, visibility is crucial to executing on best practices. Knowing the demand, supply, and on-hand inventory levels across each of your locations and sales channels is key to a nimble and responsive supply chain.
Fuse is an inventory forecasting and planning solution designed for modern brands.