Supply chains are intricate, encompassing a complex web of interconnected activities involving suppliers, manufacturers, distributors, and customers. If a link breaks, it can have drastic consequences, leading to delays, increased costs, and even a loss of business. Because of this, it’s imperative to understand the various sources of supply chain disruptions to ensure your procurement department can operate effectively and efficiently.
Here are some of the most common sources of supply chain disruptions:
- Demand disruptions: Fluctuations in demand, such as sudden changes in consumer preferences or market trends, can pose significant challenges to supply chains. For example, a sudden surge for a particular product can strain your supply chain’s capacity, resulting in delays or shortages.
- Supply disruptions: Supply disruptions occur when suppliers are unable to meet the required quantity or quality of goods and services. They can be caused by various factors, from raw material shortages to labor strikes. When a key supplier fails to deliver, it can have a cascading effect on the rest of the supply chain, impacting every procurement process downstream.
- Environmental factors: Environmental disruptions are often beyond the control of businesses but can have a severe impact on their supply chains. These disruptions include a wide range of events, including natural disasters, trade policy changes, sanctions, or geopolitical conflicts. These disruptions can lead to infrastructure damage, transportation disruptions, or regulatory constraints, all of which impede the smooth flow of goods and services.
- Manufacturing disruptions: Machinery breakdowns, equipment failures, or labor shortages can severely impact the manufacturing process, affecting production schedules, product quality, and lead times. For example, a breakdown of critical manufacturing equipment can result in reduced production capacity, which can cause a ripple effect on the overall supply.
- Shipping disruptions: Transportation and logistics issues, such as port backlogs, customs hold-ups, labor disputes, fuel cost changes, or shortages in availability, can all cause shipping problems. This can delay packages from reaching their destination on time, hike up transport fees, and lead to discrepancies in stock levels.
Not sure of the best way to navigate potential supply chain disruptions? Velocity’s full suite of advisory services allows you to reduce supply chain risk and move forward with confidence. Learn more.
Five Ways a Procurement Expert Can Help
Even with so many sources of potential supply chain disruption, there’s hope for your procurement department. Collaborating with an experienced procurement company can help you steer clear of unpleasant surprises and added expenses, allowing you to establish effective procurement strategies that make it possible to adjust to changing conditions. Here are five ways they can support your procurement operations:
1. Creating a Contingency Plan
To avoid supply chain disruptions, you need to take proactive steps that prepare your business for any potential broken link in your supply chain. Your contingency plan should include a comprehensive assessment of your current processes, procedures, technologies, and staff, as well as an examination of potential supply chain risks and their associated costs. Your procurement management partner can help you identify potential weak points within your supply chain and provide you with custom strategies to manage them better. Should your supply chain be disrupted in the future, you’ll already have an effective plan for responding to it.
2. Auditing Your Supply Chain
Once you’ve identified the risks associated with your supply chain, you need to audit it regularly to ensure there are no hidden weak points or areas of vulnerability. An experienced procurement company can provide invaluable experience here, whether through auditing your current supplier base or developing protocols for supplier compliance. Additionally, your partner can help you negotiate improved terms and conditions with your suppliers, which can further reduce risks associated with supply chain disruption.
3. Identifying Backup Suppliers and Diversifying Your Supply Base
Having a diverse supplier base is essential for avoiding supply chain disruptions, as it allows you to pivot if one area of your supply chain experiences an issue. With a reliable procurement management partner, you can identify multiple sources of goods and services that your procurement team requires so that you’re never put into a situation where you don’t have backup options available.
4. Building Up Your Inventory
A dependable procurement company can also help you build your inventory levels to ensure you always have adequate stock available when needed. This helps reduce the risk of running out of material or supplies during a disruption event and creates a buffer stock, which allows you to stay afloat when there’s increased demand or longer than expected lead times from suppliers. Additionally, having extra inventory on hand can reduce costs over time by eliminating the need for rush orders that incur higher prices due to urgency or limited availability.
5. Increasing Supply Chain Transparency and Visibility
By developing a real-time dashboard for tracking materials and orders along every step of the procurement process—from sourcing to delivery—your procurement partner allows you to increase visible visibility across your entire supply chain network. From pricing trends to supplier performance metrics, these dashboards provide you with crucial insight that allows you to make accurate predictions about future trends. This allows you to react quickly to supply chain disruptions or avoid them altogether.
Establish a Resilient Procurement Strategy With Velocity
Supply chain disruptions can create significant challenges for any source-to-pay organization. Fortunately, with support from an expert like Velocity Procurement, you can mitigate the risk of disruption and ensure your procurement department is equipped to deal with anything the market throws its way. We proudly provide advisory services that help you optimize your supply chain network and achieve savings so you can continue moving forward with your business.
Get in touch with us today to start protecting your business from potential disruptions.