Tag Archives: Material Costs

Disruptive supply chains cause uncertainty. This leads to disjointed internal functions and frustration. And although there have been significant improvements with technology, supply chain disruptions are still managed by people.

Having good relationships with your strategic suppliers will help ensure someone will answer your call regarding delayed delivery dates, but that’s not enough to ensure supply continuity in our increasingly complex and disruptive supply chains.

There are five types of solutions supply chain managers can employ to decrease uncertainty and to improve reliability in their supply chain. We have compiled them into this infographic:

• TIME
• PRICING
• PRODUCTION
• INVENTORY
• INFORMATION

Each type of solution can be effective, however each has its downside to watch out for.

Time

Expediting freight or delaying order fulfillment are commonly used tactics.

What to watch for: If your customers have other options and low customer loyalty, delaying delivery dates can significantly reduce your revenues. If you have a low margin product, premium freight can wipe out profits.

Pricing

Prices for hard-to-get commodities skyrocket during times of uncertain supply, contributing to cost inflation.

What to watch for: If inflated material costs can’t be passed on to customers, margins suffer.

Production

Production solutions to supply disruptions include flexible manufacturing and quick changeover practices, having alternative suppliers and substitute materials, reducing quality rejects in order to have more saleable product, and improving the source, make, and deliver cycle times.

What to watch for: Production solutions often take time to develop, which is why they are effective during times of certain supply, but when dealing with surprising disruptions, they’re often too little, too late.

Inventory

Stocking up on inventory is a common response to disruptions, however warehouse and storage space can be a constraint requiring investment in facilities and equipment.

What to watch for: Excessive inventories drain cash and tie up working capital. A better practice is to use statistical analysis to evaluate how changing lead times are affecting the reorder points and order quantities in your ERP system.

Information

Uncertainty is caused by lack of information. Embed a strong SIOP process — Sales, Inventory, and Operations Planning. Conduct value stream maps to understand the tiered network of the supply chain. Implement strong supplier scorecards, and have a robust risk register process where there are early warning systems, contract optionality, and redundancies in the supply base.

What to watch for: Information solutions are sometimes viewed as expensive, however they are rarely more expensive than increasing investments in facilities and equipment, or habitually discounting obsolete inventory, or perpetually incurring premium freight.

If your company needs help reducing supply disruptions, turn to the supply chain experts at USC Consulting Group. We have been empowering our clients’ performance for over 50 years.

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