A 4- step blueprint to prepare now for strikes and logistical challenges ahead.
As we face ongoing supply chain disruptions—from port strikes to geopolitical conflicts to extreme weather to raw material shortages—manufacturing and distribution companies will need to create strategies to stay ahead of logistical challenges. Strategic PE-backed CFOs and COOs won’t just respond to a crisis, they’ll take the necessary steps now to build the kind of resilient and adaptable operation that can withstand inevitable disruptions.
Because, make no mistake, the consequences of being ill-prepared will be significant. Without proper contingency plans in place, companies will face steep competition for freight capacity and alternate shipping routes. The resulting delays and shortages will ripple across the organization, impacting everything from production timelines to customer satisfaction, and ultimately, profitability.
The good news is that PE-backed CFOs and COOs can take 4 steps right now to mitigate the challenges of a potential January port strike (and any other unexpected logistical disturbances).
Step 1: Reassess supply and demand in real-time
Before you can get ahead of any logistics issues, you need to understand the potential (outsized) impact of those issues. Disruptions can create a bullwhip effect across the supply chain, in which small changes in demand at the retail level cause larger changes in demand at the wholesale, distributor, and manufacturer levels.
To avoid the bullwhip – or at least to hedge against it –you need to make use of real-time demand and supply planning solutions, which allow you to:
- Adequately prepare for demand spikes: This will be especially relevant for goods that have a long-lead time or are typically transported through international ports.
- Adjust historical demand data: Your team can learn from and leverage rear-view trends, but they must fine-tune any historical data to more accurately forecast future requirements, accounting for shortages and the demand spikes mentioned above.
- Prepare inventory and revenue analysis: These analyses should identify where the organization will be able to withstand delays and, conversely, when/where more urgent action, (such as air freight or domestic purchases) will be required.
- Monitor for potential disruptions: Your team can use advanced technology and analytics to monitor geopolitical developments, weather patterns, and port conditions to ensure they have access to real-time visibility into port statuses and potential disturbances.
Step 2: Create contingency plans now…for disturbances later
Spend time in non-crisis periods evaluating your distribution centers (DCs). You are trying to assess the DCs ability to handle increased throughput due to bottlenecks and extended lead times. And you’re trying to build flexibility where that DC will fall short. To do so, you will need to:
- Build safety stock: This will help with variation at strategic points along the supply chain. It will mean maintaining strategic warehouses closer to your key markets to help mitigate the impact of delays by ensuring you have products on-hand to satisfy customer demand.
- Size DCs appropriately: You want to ensure they are in the appropriate location to help manage inventory disruptions.
- Track live container shipments: Using tracking technology, you can adjust PO dates in real time, enabling flexible adjustments to avoid out-of-stock situations. Generating alerts that model delays will also allow you to respond quickly by requesting air shipments and expedites.
- Conduct advanced planning: This will allow you to maintain the correct flow of inventory for known shutdowns (like Chinese New Year) or potential strikes dates.
- Rebalance inventory: By adjusting your inventories you can positively affect both your supply chain and your cash flow as you navigate through demand shifts and seasonality.
Step 3: Do a deep dive into domestic sourcing and supplier diversification
It’s possible that dual sourcing from domestic suppliers and/or shifting production closer to the U.S. will be an effective strategy for mitigating international supply chain risks. But transitioning suppliers comes with challenges – and you will want to spend time (now) assessing the risks and the rewards. Potential steps to take here include:
- Supplier diversification: This approach reduces vulnerability to any single source or country while building flexibility in the supply chain. It can also diversify regional ports through which that international supply is received.
- Vendor classification: Identifying all tier-1 and tier-2 suppliers based on material supply, region, and logistics will help you better understand the risks in your supply network. Companies that know where vulnerabilities exist can adjust rapidly during a strike or disruption.
- Testing and validation: Vetting new suppliers can cause initial delays, but dual-sourcing long-lead-time components will protect against future disruptions. Anticipating and preparing for increased demand and extended lead times while this transition occurs is a proactive measure that can prevent potential disruptions.
- Nearshoring: Moving production to Mexico or other nearby countries can provide greater control over the supply chain, reducing reliance on distant international suppliers.
- Collaborative planning: Partnering with suppliers can help you anticipate disruptions and react more quickly. Negotiating contracts with logistics providers to allow for flexibility in port routing, reduced cost for airfreight, stateside distribution, and “Hold for Release” programs, can give you more options and flexibility.
Step 4: Invest in technology
Tech alone will never solve all of your logistical issues. You will always need a “human in the loop” to trouble-shoot and strategize the best paths for disruption mitigation. That said, emerging tools and technology can enable those humans to make better and more informed decisions. Building the appropriate analytical engines and infrastructure ahead of time will ensure that you can act swiftly and decisively, minimizing the impact of delays and avoiding costly downtime, (while others scramble to adjust). CFOs and COOs should consider investing in:
- Supply chain management software: These tools will provide enhanced visibility and enable shipment tracking.
- Predictive analytics: These tools can help you foresee potential disruptions, minimize the impact to the supply chain and margin, and allow the business to execute effectively when issues arise.
- Pre-built analytics models: Your contingency plans should include these models, with alerts enabling your team to quickly identify, pivot, and optimize operations when disruptions arise.
- Real-time data: Systems that aggregate data on container movements, port congestion, and supply chain delays will provide your team with a competitive edge to adjust supply and avoid the bottlenecks that bring others to a standstill.
The looming port strike is just the latest in a series of disruptions that have challenged global supply chains over the past several years. By spearheading proactive contingency planning, backed by advanced analytics and powered by supply-chain specific points solutions, PE-backed CFOs and COOs can ensure that their companies are resilient enough to protect profitability and continue long-term growth, even in an uncertain supply chain environment.