Jul
20
All supply chains are subject to various risks and these need to be managed effectively in order to ensure that the supply chain is as effective as possible. But what are the 10 most common supply chain risks that all businesses need to be aware of?
1. Instability: Instability within the supply chain is an inherent risk and the most common risk of all. All supply chains need to be stable – today’s business worlds includes problems with global supply chains, commodity markets growing competitiveness and technology driven capabilities mean that the instable market place can all add problems which need to be managed.
2. Inflexibility: Inflexibility is a risk within the supply chain because it means that the supplier will not be able to cope if there is a sudden increase in demand for supplies. So any supply chain needs to be as flexible as possible.
3. Stock outs: The risk of stock outs is always a real risk and one that needs to be managed effectively so that the supply chain can be made secure and that there are no hold ups in terms of production.
4. Suppliers going bankrupt: One effect of the recession has been to drive many suppliers out of business. They may have work in but if they are unable to get cash flowing into the business and the banks are unwilling to lend, then many businesses simply go asunder.
5. Defects: Defects or shoddy goods are always a risk within the supply chain and they need to be kept to a minimum to reduce the prospect of production being slowed down or even halted as a result of defects.
6. Natural Disasters: Until only a few months ago, no one would have thought that a volcano erupting in Iceland could literally cripple the movement of goods by air. However it did! The resulting pressure on other forms of transport also meant that there was a knock on effect and that supplies were often disrupted. Flooding is another natural disaster that is apparently on the rise, so do not ignore the risk of natural disasters.
7. Information Theft: Hackers or those who send viruses or attempt to disrupt service through electronic means are also a risk within the supply chain, simply because so much business is done electronically. So there has to be a tight back up for all information and data retention/sharing.
8. Sudden increase in costs: Sometimes commodities can be relatively stable for some time and then suddenly they are in demand and the price goes up. This can have a major effect on the supply chain and can lead to it being far less stable than it was previously, simply because it cannot meet the increasing rise in costs.
9. Deliberate acts: Deliberate acts can vary from thefts, to vandalism, to acts of terrorism, so the impact of the deliberate acts can vary from a consignment of goods being set fire to, right the way up to transport links being severely disrupted due to a terrorist act. So in line with natural disasters, the deliberate acts that could affect the supply chain have to be managed and given due consideration.
10. The final common risk that any supply chain faces is simply the loss of suppliers because they are able to secure a higher price for the goods that they supply from someone else, rather than your business. This is obviously a difficult risk to manage, because you want your suppliers to offer you the best rates possible and you do not want to pay over the odds for items, but on the other hand you do not want to cut the supplier’s profits to such a low level that they seek to do business elsewhere!
All in all then, there are a number of common risks that businesses have to consider with regard to the supply chain and there is no single solution to ensure that the risks do not pose a threat to the chain. By their very nature, supply chains are risky!
Jul
20
10 Problems With Vendor Managed Inventory
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Inventory or stock management systems that are managed by the vendor are commonly used to improve inventory control whilst providing efficiencies and cost reduction opportunities. But are there any problems with regard to VMI and is it indeed the Holy Grail or just another inventory system?
1. The first problem relating to VMI is that it is in fact an inventory system and by its very nature that makes it imperfect. To put it bluntly there is no such thing as a ‘perfect’ inventory system or that would be used in each and every business in the world. So it is not perfect and there are flaws within the system, just like any other!
2. VMI is dependent on big business. If you have customers who order infrequently from you and even when they do order, they don’t actually order that much, then a VMI system is probably not going to work successfully. For a VMI system to be effective and cost effective then the customers have to be ordering frequently and in bulk.
3. All the stakeholders who are involved within the process have to be 100% behind it and this can be extremely difficult to achieve in practice. Stakeholders need to be committed and want to make it happen. It takes more than words or lip service to make VMI a success, so it can be destined to failure if each and every stakeholder does not share the ideal of making VMI work.
4. Trust cannot be achieved overnight. For VMI to operate effectively it needs to be built on trust and that is something that will only grow with time, it cannot be bought or acquired; it has to be earned. This means that VMI can take some time to become effective.
5. VMI is often reliant on process and technology. This is fine so long as it is running smoothly but when things go wrong it can be terribly damaging to the VMI operationally. Although technology is now quite reliant it only takes one failure and the trust that has been established breaks down and in addition the supply chain can go into meltdown.
6. Smaller businesses are more likely to find VMI more challenging to deploy, barriers to technology and supplier buy in can prevent an organization from getting off the ground.
7. A VMI system often requires the vendor to make more deliveries of goods, especially if the customer prefers to keep stocks quite low and this can be problematic. A joined up approach between the vendor and the buyer on batch sizes and process can pay dividends in the long run.
8. VMI requires the vendor to take more responsibility overall because they are now responsible for the delivery of items and deciding when the customer needs more goods. This is quite a responsibility and not all vendors are geared up to handling this kind of responsibility, so to some extent, there are some companies for whom VMI is simply in another league.
9. VMI is also dependent on the vendor and the customer being able to work together to accurately determine forecasts for demand in both the long and the short term. Without accurate forecasts, the system will simply implode and be unable to cope with peaks in demand and then the ‘bull whip’ effect takes over and the supply chain becomes more volatile.
10. Ensure you work hard to obtain the trust of the end user – they will feel the sharp end of any problems and difficulties – work hard to include them in the deployment process and establish regular reviews to capture and resolve any issues that arise.