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Key Factors to Mitigate Logistics and Supply Chain Crisis

Organizations share knowledge of the current supply chain situation, how to utilize business analytics for predictive modeling and what measures to take to assess and mitigate supply chain risk. This can quickly identify parts of the supply chain where reaction plans are needed, through the comprehensive understanding of the supply chain, experience in business analytics, and capacity to aggregate industry-wide data points. As a result, companies can manage the crisis through forecasting and remain ahead of the curve by responding early, creating predictions fast and correctly, and bridging data gaps. The cost of regret will be small for individuals who choose this strategy, and their response may be actively regulated as new information becomes available. This article discusses the key factors that must be considered to mitigate any crisis arising from logistics and supply chain operations.

Clear Forecast of Business Requirements

Businesses loses income if a product is unavailable for purchase because it is out of stock, and they face the risk of losing the consumer to a competitor over time. Sitting on a large amount of underutilized inventory on the other hand, waste both space and manufacturing expenses, that is why business requirements have to be clearly forecasted. Demand planning is a supply chain management method for forecasting or estimating product demand to ensure that products can be deliver and consumers are satisfied. The idea is to establish a balance between having enough inventory to meet client demands while also not having an excess. Demand can be influenced by a range of reasons, such as labor force changes, economic upheavals, extreme weather, natural disasters, or global crises events. Statistical forecasting uses complex statistical algorithms to make supply chain forecasts based on historical data. It is critical to assess the accuracy of each model, identify outliers and exclusions, and comprehend assumptions in this domain. Statistical forecasting can also be used to examine seasonal shifts. Example, the surge in Christmas shopping that happens between October and December for merchants, or the increase in yard equipment sales in the spring months.

Choosing the Level of Disruption to Mitigate 

Organizations must decide the right amount of risk mitigation for them, which is based on a number of criteria and the common denominator of time. Each institution must examine its operations thoroughly and determine how long it can afford to defend it financially. Despite the fact that with an uncertain situation, there should be real points of reference to start breaking things down. Assumptions must be well understood when determining a degree of disruption to minimize in order to pivot rapidly when external circumstances alter. 

Contract application is problematic since they are often written for day-to-day management and not for times of disruption or tragedy. While the parties are contractually able to apply the contract, each party will be affected differently and may not be able to respond adequately. Force majeure is becoming increasingly widely used however it must be used with caution because the definition and scope of force majeure differ from contract to contract. Plan out what potential contractual outcomes would mean for company, assess revenue sensitivity, form scenario teams, and stay in touch with customers.

Category Response Plan

The difficulty in evaluating the proper answer for each category and being able to escalate the response over time as the circumstance evolves is a major obstacle when constructing a category response. This is even more difficult in the current context, because initial mitigation measures are losing effectiveness over time. Create a virtual supply chain within the company to digitally manage inventory. One of the greatest mitigation reaction plans is to create a virtual supply chain within business to digitally transfer parts and link with supplier stock levels. It can be employed in a supply chain that focuses on OEMs. The level of mitigation can be specified and altered over time with a graded response.

Vulnerabilities in Supply Chain

Production site and supplier match criteria are the best ways to analyze supply chain risk. When suppliers hold high local stocks and have multiple available manufacturing facilities to source future requirements and client has a substantial and preferred supply agreement to get first access to what supply is available, the level of interruption will be enormous. To address this issue, companies should classify maintainable items by type and qualitatively assess each individual market exposure through interviews and research of publicly available information, test market lead times by placing orders and confirming local stock levels, and estimate global demand for each key component to evaluate the short-term requirement compared to industry averages and compiled data from numerous users experiences to generate an unified industry reference point.

Diversifying Supply Base

The challenge for businesses will be to strengthen their supply chains while maintaining their competitiveness. To face this problem, managers must first recognize their vulnerabilities, after which they must consider a number of actions, some of which should have been done long before the pandemic, particularly in the supply chain. Purchasing from a large manufacturer has several advantages, including a greater worldwide reach, legal advantages and in most cases, a lesser chance of bankruptcy. However, since many industry insiders emphasize the benefits of supply chain diversification, purchasing from small and medium-sized enterprises is becoming increasingly advantageous.

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Jocelyn Liew Houy Yng, DLSM
Jocelyn Liew Houy Yng, DLSM
Jocelyn Liew Houy Yng has substantive years of experience in the specialised field of logistics operations, and specifically in distribution services. Jocelyn is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). She completed Diploma in Logistics and Supply Management (DLSM) on September 2021 at SIPMM Institute.
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