Applying what-if analysis to your supply chain

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What-if analysis (contingency planning) is an important analysis to perform to ascertain the extent to which your supply chain is susceptible to various disruptions, and how you would handle disruptions should they arise. This article explores ways of 

Key risks in your supply chain

Supplier disruption - delays or disruptions to parts

A key risk in supply chains is associated with disruptions of a supplier’s operations. Such disruptions can impact the number of parts that you are able to source or the timing of when they will be delivered to your operations. 

Suppliers exerting greater power, and increasing prices

Another source of supplier disruption comes from the possibility of your supplier exerting their power, potentially from your dependence on them, to increase the cost of the parts that you are buying. 

Transportation disruption

Another source of disruption in the supply chain comes from possible disruptions to the transportation of goods. Shipping goods across the globe comes with the risk of delays – potentially containers stuck on a ship for an extended period of time.

Environmental disasters

Another source of disruptions to your supply chain can come from environmental disasters. Such disasters can have a significant impact on supply chains – potentially not only impacting your direct suppliers but also their suppliers. For certain products, there are regions of the world that specialize in the production of those products – if there is an environmental disaster in those regions it can have a knock-on effect throughout the supply chain. 

Changes to import tariffs or exchange rates

Another source of potential disruptions is changes to import tariffs or exchange rates. These can significantly impact the costs of the components that you are buying, with the potential to squeeze your profit margins. 

The importance of contingency planning - considering what you would do if there were supply disruptions

Systematically considering the possible impact of various external factors that can impact your supply chain is important to develop contingency plans should a particular event occur. Rather than being caught out, scrambling to decide how you will respond, advance preparation allows you to more easily decide on how to respond and enact a pre-determined plan of action. Some possible approaches to handle supply chain disruptions include:

Do you have local suppliers?

One approach to reducing the impact of possible supply chain disruptions is having local suppliers that you can turn to should you face issues overseas. Such supply arrangements could potentially involve dual-sourcing – acquiring a proportion of your goods from these suppliers and a proportion from overseas suppliers. This can offer flexibility should there be disruptions that impact a particular region of the globe or significant changes to exchange rates. 

How easy could you move to a different supplier?

Beyond pre-established supply arrangments, it is important to consider whether you can quickly move to a different supplier. Some goods can readily be bought from multiple different suppliers, and switch between them is relatively easy. Others require months before they are able to deliver on orders. Considering the ease at which you could, should you need to, move to a different supplier can help prepare you should there be a need to make supply chain adjustments.

It is however important to recognize that sometimes global events can have such a profound impact that potential suppliers become a lot harder to add in a time of crisis. Not only are you likely to be wanting to switch the firms that you source from, but so too are many other companies that have also had their supply chain disrupted. 

Do you have the capability to manufacture in-house?

Another question to consider is whether you have the capability in-house to adapt to supply chain disruptions. Being able to transition some of your production in-house can help reduce the impact of supply chain disruptions. 

Would you be able to adapt your products to use a different component or materials?

A final question to consider is whether there are alternative products or materials that you could substitute instead of your current inputs. Having alternative backups can again help reduce the impact of possible disruptions.

Final thoughts: The importance of being prepared

It is never possible to anticipate all possible disruptions to the supply chain. Few firms anticipated the potential supply chain impacts of Covid-19. Yet, the better prepared your firm is for a range of possible supply chain disruptions, the better place you are likely to be to handle the range of disruptions that you will face. Systematically considering how you will handle various scenarios can help quickly respond should there be a need. 

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