November 23, 2020

A Guide to Proactive Supply Chain Management

The process of acquiring materials and creating a product to sell to customers involves extensive planning and collaboration between suppliers and manufacturers. With the final product depending on so many factors, sometimes a disruption in the supply chain is inevitable, but it is possible to reduce the disruption’s severity or even mitigate it entirely.

Anything can disrupt your supply chain, from an unexpected increase in demand to natural disasters like hurricanes or devastating floods. When problems occur, it is imperative to act quickly to minimize delays and continue meeting consumer demands.

By implementing effective migrating strategies, you can protect your business from severe fallout.

Benefits of Effective Supply Chain Management

A factor in your business’s success is its responsiveness to problems before they arise. There are any number of things that can contribute to a disruption in your supply chain such as:

  • Lack of raw materials
  • Strikes
  • Miscommunication throughout the supply chain
  • Factory failures and compliance issues
  • Cybersecurity breaches

Developing and Implementing strategies to mitigate supply chain disruptions will benefit your business by:

  • Protecting production and delivery deadlines
  • Reducing or eliminating profit losses by addressing potential problems early
  • Protecting the company brand
  • Improving customer satisfaction
  • Promptly a quick response to unexpected situations

Developing Your Supply Supply Chain Strategy

As your business continues to grow, you can continue to expand your supply chain strategy. By planning for the unforeseeable, you will be able to keep your business running smoothly in a variety of scenarios.  Here are a few strategies that you might consider.

1. Work With a Contract Manufacturer That Can Keep Safety Stock

Safety stock is an intentional overflow of products held by a contract manufacturer on behalf of a client. It serves as protection against an increase in demand, and it prevents disruptions in production and distribution. It is possible to have safety stock in finished goods or raw materials.

Including safety stock in your supply chain risk management plan will help a business stay ahead of unplanned events. The safety stock will always be available to the client as long as they work with the manufacturer.

It provides a sufficient buffer, allowing the business to satisfy its customer’s needs. It also gives the manufacturer enough time to increase production to meet the new demand and replenish the overflow.

Increased product demands are only beneficial to a business if it can produce a sufficient amount of goods without missing the customer’s deadline. With safety stock, the manufacturer will have an excess of products they can turn over to the client to fulfill the new demand.

There are no specific rules in place for how many goods a contract manufacturer can hold as safety stock, but partnerships with companies like The Federal Group USA can help clients forecast 30, 60, 90, or 120 days of safety stock planning.

2. Work With Vendors Who Offer Stocking Agreements Based on Annual Usage

If your business has a consistent annual need for a specific amount of product but does not require the entire stock at once, facilitating a stocking agreement with your vendor is an effective way to mitigate supply chain risk. Stocking agreements are blanket orders that prevent the supplier or the client from holding excessive inventory.

With this agreement, the vendor will base their inventory projections on the client’s yearly usage and hold the stock until they need a shipment. The stocking agreement will detail the shipment frequency and the quantity, ensuring a steady flow of inventory.

This mitigating strategy is beneficial because it reduces inventory without lowering your distribution demands. Businesses can take the money they save on purchasing and storing advanced quantities and apply it to other departments requiring extra funding.

3. Work With a Contract Manufacturer Who Can Establish Dual Sourcing

A good practice is to have multiple sources for products and raw materials, but that does not mean the business is solely responsible for developing a network of suppliers. It is best to seek contract manufacturers who also have multiple production sources.

Dual sourcing is the practice of having two separate suppliers for raw materials, services, and products. Having a single source is risky because if the manufacturer has any delays, produces low-quality items, or cannot meet increased product demands, the client’s business will experience a supply chain disruption.

If the contract manufacturer has more than one factory or raw material supplier, they can tap the additional facility to ensure a timely shipment of quality goods to the client.

Risk reduction is the most significant benefit of dual sourcing. The client will not be left in a bind if an unexpected event occurs. Also, the client will not have to find a replacement vendor on short notice, which typically results in expensive premiums that reduce profit.

Formulating Your Strategy for Mitigating A Supply Chain Disruption

A successful supply chain requires immediate attention to possible risks that could affect the production and delivery of goods and services to the final customer.

Dual sourcing, stocking agreements, safety stock, upgraded cybersecurity technology, and improved practices are effective ways to mitigate supply chain disruptions. By implementing these proven strategies, you can continue growing your company while keeping your customers satisfied.

If you need to work with a professional metal fabrication contract manufacturer, our team at The Federal Group USA will be glad to assist you. For over 40 years, we have been providing clients with top-quality metal fabrication services and manufacturing solutions.

Contact our team today to request a quote and learn more about our stocking arrangements.

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