July 5, 2022 Five Common Shortage Management Mistakes

Why short-sighted stopgap solutions don’t work and what to do instead.

Shortages are pervasive in today’s economy, but with new challenges popping up daily, how do we get in front of them? In their effort to keep up, manufacturers are turning to quick fixes to deal with the symptoms of shortages instead of addressing the root problems. Unfortunately, many of these easy, instinctive solutions are short-sighted stopgaps. And because disruptions are occurring more frequently, there’s little time for manufacturers to bounce back and recover before the next challenge occurs.

Gartner recently shared that 60% of supply chains have been designed for cost efficiency rather than resilience or agility. The result is a major impact on revenue and working capital which will become a growing concern in the months to come. Below are a few ways manufacturers are dealing with shortage disruptions and new approaches they should explore going forward.

Stopgap 1: Increasing Safety Stock

Many manufacturers are actively building up excess inventory in an effort to prevent future shortages. Unfortunately, they lack visibility into which of these parts are critical for customer’s production versus just building more safety stock. This puts increasing strain on suppliers’ already limited capacity as they also often don’t have visibility into what is most critical for them to produce. Overstocking can spiral into more shortages, higher price increases, excess inventory, and manufacturers even running out of warehouse space.

Manufacturers should consider a Plan-For-Every-Part (PFEP) analytical approach to optimize the order policies that define how to procure each part. This enables supply chain leaders to glean a 360-degree view of their inventory and procurement policies to make sure each inventory dollar is maximized.

Stopgap 2: Expediting Materials

Transportation costs are 400% more expensive than pre-pandemic times, and expediting shipments can cost 10x more. Without visibility into which parts are most severely impacting customer orders and production lines, manufacturers are often paying fees to expedite the wrong parts. One industrial goods manufacturer spent 2M$ on expediting, only for the parts to sit in a warehouse for 60 days because another critical part wasn’t available.

Implementing a simple workflow linked to a Clear-to-Build dashboard is a powerful alternative that prioritizes critical shortages and enables easy collaboration with suppliers on delivery commit dates.

Stopgap 3: Daily and Weekly Shortage Meetings

The problem with being reactive is that you’re only dealing with problems that have already occurred. Employees are overworked, shortages continue, excess inventory grows, and firefighting is the norm. Manufacturers relying on archaic, disconnected, manual reports and analytics to guide daily work for procurement teams is a critical issue.

Instead, organizations can leverage real-time advanced analytics with purpose-built workflows to allow buyers and procurement teams to intelligently prioritize daily actions and easily collaborate on resolving day-to-day issues, without unnecessary meetings.

Stopgap 4: More Planning Tools and Processes

While the planners are provided technology to create forecast models based on volatile demand and material inventory, buyers and suppliers are typically working in silos with outdated information and noisy signals. Suppliers are receiving forecasts based on even more outdated information, without insight into the critical production priorities. This asynchronous approach and a lack of clear communication leads to dysfunction throughout the supply chain which further amplifies the bullwhip effect.

Manufacturers need a way to see, prioritize and collaborate on dynamic material timelines, availability, and critical shortages. Internal stakeholders and suppliers need visibility into the most up-to-date information so everyone can operate with the same knowledge and work towards the same business goal.

Stopgap 5: More Homegrown Analytics Reports

While BI tools and spreadsheets can provide useful ad-hoc reporting and visualization, they require a substantial amount of time, money, and resources to build and maintain. Spreadsheets are rarely collaborative, and BI reports don’t easily surface priorities or make recommendations. Worst of all, they don’t foster collaboration and are often inaccessible to external suppliers who are critical for customer delivery.

To remain competitive, companies must maintain continuous alignment on supply chain priorities among buyers, planners, and suppliers. Leveraging a solution with real-time information, intelligent interpretation and prioritization of data, as well as purpose-built collaboration workflows can help supply chain teams overcome analysis paralysis.

Conclusion

Issues will continue to arise in the supply chain, and If it’s not material or talent shortages, it’ll be inflation, trapped working capital, supplier risk, or a new environmental or geo-political disruption. Manufacturers need simple changes to break down the silos between planners, buyers, and suppliers, as well as synchronize supply chain execution with production priorities. In today’s shortage economy, it’s critical that manufacturers build resilience into their supply chain processes so that they can pivot to meet production goals as conditions change.

About the Author
Richard Lebovitz is the founder and CEO of LeanDNA, a cloud-based actionable intelligence platform built by lean experts with powerful analytics and best practices operational dashboards. LeanDNA empowers supply chain professionals to dramatically reduce excess inventory, improve on-time customer delivery, and establish operational command.

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