Operating a successful business goes far beyond coming up with a winning idea for a new product or service. Particularly where products are concerned, proper production planning is a must so that company’s make the best use of their limited resources. No business has unlimited capital and careful planning that incorporates sales forecasts, supply chain planning, and supply contingencies is the best way to ensure long-term success and avoid a potential business-killing bottleneck.
The Impact of Supply Chain Disruptions
Just a decade ago, consumers were accustomed to placing orders for products, such as specialty vehicles and furniture, and waiting for their delivery. While this is still the norm in some industries, we’ve become a society much more disposed to instant gratification thanks to businesses like Amazon and Wayfair. Today, consumers can get anything from diapers to bedroom furniture shipped to their home for free in just two business days, with same-day shipping in many major markets.
Restoration Hardware learned this production planning lesson the hard way recently with the release of its new RH Modern line. Due to inventory shortages, which they are blaming on shortages from key suppliers and lack of visibility in the supply chain, there are some extreme backorder situations. In fact, some items aren’t shipping for over six months. Delays like this are causing the company to suffer order cancellations and investors have taken note of the situation as well with the stock plummeting 60% in first part of 2016.
Supply Chain Catastrophes and Contingency Planning
Most consumers may not be familiar with the name Tianjin, but it’s likely that they’ve been affected by its recent disaster. One of the largest ports in the world, the Chinese city of 11 million residents is home to over three hundred Fortune 500 company offices, as well as factories that build airplane components, mobile phones, and cars. On August 21, 2015, the port suffered an explosion that was the equivalent of 21 tons of exploding TNT, affecting companies and supply chains around the globe.
The explosion was estimated to have caused $6 billion in damage and destroyed more than 10,000 completed vehicles from Range Rover, Hyundai, and Toyota as well as key supplies for companies like John Deere and GlaxoSmithKline. Many months later, port activities remain hindered from this disaster, which is considered the largest commercial disaster in maritime history. As many companies today have tightened controls and gone to just-in-time inventory scheduling, it’s more important than ever to have supply chain contingencies in place in the event of such a disaster.
Tips for Avoiding a Supply Chain Disaster
Supply chain management (SCM) mistakes can wreak havoc on a company’s balance sheet and drive away the customers that a business has worked so hard to attract. Some of the biggest SCM disasters of the past twenty years have also given way to a host of valuable lessons. According to industry experts, several tips for avoiding supply chain disasters include:
- Ensure that you have visibility throughout every step in the supply chain.
- Be prepared with contingencies for supply chain interruptions.
- Understand the potential delays of launching a product with multiple suppliers.
- Consider delivery issues and contingencies when selecting suppliers.
Successful production planning involves much more than selecting the lowest bidder for your manufacturing or supply chain activities. Prosperous and resilient companies will ensure that they have the right suppliers on their team as well as have contingencies in place in the event of delays or disaster. Getting help from outside consultants is also highly recommended when it comes to dealing with complicated supply chain management issues.
