Supply chain disruptions are inevitable and costly. A business continuity survey found that 56% of companies experienced a supply chain disruption in the last 12 months. Despite the prevalence of these problems, 26% lack a business continuity plan, and 30% do not review supply chain disruptions when they happen. This is a costly gamble, especially as trade concerns remain a looming supply chain threat for 2020. Companies looking to minimize the volatility of trade policy must look ahead and create a plan B proactively before a response comes too late.
Start looking at the entire supply chain and identifying threats. Include trade vulnerabilities, as well as other potential areas of disruption like weather, political unrest, changing government regulations, and shipping infrastructure. Review contracts and assess supplier compliance and performance based on the terms. Identify additional risks by looking across the supplier base to examine timing, trade terms, and country of origin provisions within contracts. Go beyond the company’s supply chain and trace the supply chains of suppliers to uncover additional hazards.
Single-sourcing products may bring ease and cost controls to a supply chain, but this practice proves risky when interruptions strike. Giving weight to risk management in addition to cost savings delivers better continuity. That is why strong supply chains are diversified with multiple suppliers across different areas. Foreign trade data from the U.S. Census Bureau shows imports from China down 13% in the first half of 2019 while Vietnam imports grew by 36%. Companies should start vetting potential suppliers in other countries should tariffs continue to increase and consider making a switch to the most cost-effective option. Also, look to diversify modes of transit. As companies rush to beat new tariff deadlines, having negotiated rates to move goods quickly by truck, train, boat, and airplane will become important.
Evaluate Demand Forecasts
Review demand forecasts as they relate to tariff timelines. Work with suppliers to adjust production schedules accordingly and try to move goods before new tariffs take effect. Adjusting production may impact warehousing operations, so conduct a cost and capacity assessment. Review the impact of producing goods early and storing them compared to import and export tariff costs. Finally, consider late customization. Rather than having complete products assembled and shipped from counties impacted by fluctuating trade policies, separate component parts and assemble at other low-cost locations as orders are received.
Negotiate long-term contracts with suppliers that lock in rates while pricing remains favorable. Consider instituting a supply chain finance program to preserve working capital as production and tariff costs increase. Under this model, companies can extend payment terms while still offering suppliers expedited payments.
Review Onboarding Procedures
Having a good onboarding process is essential should a company need to change suppliers. Ensure onboarding procedures include supplier inspections, compliance and code of conduct verifications, and regular audits. Clearly define technology requirements for custom coding, invoicing, shipping, and payment data. Failing to onboard suppliers, especially in other countries, creates risk liabilities such as poor quality, child labor, human trafficking, environmental violations, and dangerous working conditions that can conflict with corporate responsibility. It could also impact profits. Beware foreign suppliers with immediate availability to accept new orders as they likely operate with lower standards.
Having dynamic information is critical for protecting a supply chain from trade disruptions. Implement technology to consolidate data and generate analytics. Proactively conduct a sensitivity analysis based on various cost drivers like trade tariffs to assess the impact on the supply chain. Create and test alternative supply chain models in advance should changes become necessary.
Supply chain disruptions are not an if, but rather a matter of when. Planning and forethought can strengthen supply chains in preparation for the unavoidable. For help combatting your supply chain risks, look to JIT Services. Our logistics and warehousing services provide customers flexibility, quality controls, and peace of mind to keep supply chains moving.