Posted by Mary Milorrie Campos
Sep 10, 2021
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Your products are just as good as where your supplies come from. This explains why the supply chain — or the activities linking you, your suppliers, and your customers — is so important. If any of these links get disrupted, your company may suffer from lower operational capacity and reduced ability to sell. Minimize the risks you can get by knowing how to manage supply chain disruptions.
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5 tips to overcome supply chain disruptions
Rising operations costs, meeting shipping requirements due to reduced consumer demand, and addressing delays caused by the drought in the Panama Canal are among the notable supply chain issues at a global level this year.
At a more granular level, these challenges can mostly affect industries that are dependent on raw materials to produce their goods.
Protect your company from these disruptions by taking immediate action. Here are some of the options to deal with supply chain issues this 2024.
1. Working with multiple suppliers
2. Building good relationships with your suppliers
3. Sourcing from local suppliers
5. Using technology in managing your supply chain
1. Consider working with multiple suppliers
Working with a single supplier sounds ideal. They can provide you with all the materials you need, give you discounts, and you can even save on freight costs.
But relying too much on one supplier also makes your company vulnerable. What will you do if they can’t deliver your resources on time? What if they stop operating?
It will be a major blow on your end for sure. Apart from experiencing delays in producing your products, you may also fail to meet your customers’ demands on time.
To prevent this kind of incidence, see if you can get several suppliers on board. If possible, choose suppliers from different geographic locations. This will help you continue your operations even if there are disturbances in the location of one of your suppliers.
See the table below for a quick comparison of single-sourcing vs. multi-sourcing.
Table 1. Single-sourcing vs. multi-sourcing
|
Single-sourcing strategy |
Multi-sourcing strategy |
|
|
Vulnerability |
Single-sourcing may lead to lopsided dependency where you rely more on your suppliers than they do on you. |
Less reliance on one supplier guarantees you that even if a supplier runs into difficulties, you can still get the materials you need from other suppliers. |
|
Flexibility |
Single-sourcing limits your ability to deal with unexpected events. |
Multi-sourcing gives you more flexibility to cope with unexpected events. |
|
Bottlenecks |
Higher risks of supply chain interruption may occur, resulting in delayed supply deliveries. |
Even if materials are scarce, working with several suppliers helps you meet peak demand. |
|
Competition |
Less to no competition. It can either encourage your suppliers to improve their service or make them complacent. |
Increased competition between suppliers gives you more bargaining power. |
|
Relationship |
Building good business relationships with one supplier is easier compared to multi-sourcing. |
Multi-sourcing can complicate supplier relationships, requiring you to improve your supplier management strategies. |
|
Costs |
Lower costs due to possible discounts and cheaper freight costs. |
Higher costs for negotiating contracts, management, and process execution. |
|
Information Sharing |
Simpler and easier compared to multi-sourcing. |
Complex and tricky. |
Having multiple suppliers is more complicated and costlier. But you can always start small, depending on what your budget allows. Working with at least two already helps you mitigate risks in your supply chain and survive in the volatile market.
You should also remember that the key to successful supplier relationships is treating them as true business partners. To build long-term, beneficial relationships, you must focus on what you can offer to your suppliers and not just on what they can bring to the table.
2. Build good relationships with your suppliers
Supply chain management isn’t just about materials and shipping. A great part of it involves people.
Building positive relationships and maintaining open communication with your suppliers allows you to deal with supply chain bottlenecks before they escalate.
Industry Week, an American Trade publication offers 10 insightful strategies for managing suppliers, which include:
1. Understanding the cost and value of your entire supply chain.
2. Realizing that supplier management requires real partnership.
3. Accepting accountability.
4. Defining service levels and metrics into agreements.
5. Working with suppliers to align incentives and penalties.
6. Sharing critical information early and maintaining constant communication.
7. Planning for emergencies.
8. Planning for possible disruptive events.
9. Promoting trust.
10. Making relationship meetings more meaningful.
You can access the full article here: 10 Strategies for Managing Suppliers.
3. Source from local suppliers
Sourcing raw materials from local suppliers lets you manage
Localizing the supply chain, according to a professor from the International Institute for Management Development (IMD), “will ensure less disruption in case of limited movement of people and goods.”
This strategy was especially helpful during the pandemic when international freight costs were at an all-time high.
Of course, sourcing from local suppliers can either be a temporary or a permanent fix, depending on how this partnership would turn out for your business.
4. Increase your liquidity
Your liquid assets let you protect your company during difficult times. With flexible access to capital, you have the option to stock up on essential items and pay for the increasing costs of freight forwarding.
To increase your liquidity, it’s crucial to determine possible ways to obtain cash whenever you run out of it. Consider the following options:
- Explore long-term financing options. Looking into your Long-term financing options can help you better manage financial risks. It’s usually in the form of bank loans, bonds, and leasing.
- Manage your receivables and payables better. A long-term strategy to increase your company’s liquidity ratio is to manage your receivables and payables better. For receivables, make sure to invoice your customers ASAP and see to it that they’re paying on time. Meanwhile, for your payables, seek ways to do the opposite. To improve your liquidity, it’s better to have longer pay cycles, such as the one offered by long-term financing.
5. Use technology in managing your supply chain
Using supply chain management (SCM) software gives you real-time visibility on what’s going on with your supply chain process. It provides you with insights into basic yet crucial data such as lead times or minimum stock levels. This can also guide you in identifying areas where you need to reduce costs, optimize efficiencies, remove risks, and determine vendors who are affected by certain disruptions.
However, not all tools are created equal.
To maximize its potential, you must choose SCM software that you can customize and adjust based on your needs. When shopping around, ask SCM vendors about what their systems are capable of and how they can be integrated into your operations.
Get accounting support for your company
If you need help managing your supply chain-related finances, including your inventory management and receivables and payables, you may contact D&V Philippines today. You can consult with our experts to find out how our accountants can help you with your financial concerns.
You may also get a free downloadable copy of our guide, Outsourcing: How to Make it Work, to learn how this initiative can expand your accounting department’s operational capacity — and how you can succeed in it.
This article was first published on 10 September 2021 and updated on 9 July 2024.
Edited by: Mary Milorrie Campos
