Manufacturing units are often taken by surprise when their production schedules are thrown out of gear because of a shortage of an essential raw material. An organization may use dozens of chemicals in its production process. The non-availability of even one input can halt a production line.
A majority of companies have well-thought-out contingency plans in place to overcome supply disruptions. But there are times when even the most careful planning proves to be inadequate.
What are the risks your manufacturing plant is exposed to?
Many organizations fail to identify the impact that a disruption in the supply of certain materials will have on their production schedule. In a paper titled From Superstorms to Factory Fires: Managing Unpredictable Supply-Chain Disruption, authors David Simchi-Levi, William Schmidt, and Yehua Wei point out that many companies make a basic error when making their contingency plans.
During the course of their study, they discovered that organizations tend to concentrate their energies on finding alternative sources of supply for high-value inputs to the production process. But the relative cost of a raw material does not have any bearing on whether its supply will be interrupted.
In fact, the greatest exposures may come from the non-availability of low-priced inputs, which have the potential to halt a production line. The study, which has been published in the Harvard Business Review, states that managers waste time and resources preparing for shortages of expensive and hard to replace inputs. While addressing possible interruptions in the supply of these items is essential, equal attention needs to be paid to low-cost materials as well.
Strategies to address disruptions in supply
Chemicals that don’t cost too much and which occupy little storage space can be purchased in bulk. It would be advisable to maintain a large inventory of materials of this type so that unexpected shortages do not affect the production schedule.
But most chemicals do not fall in this category. To address a disruption in the supply of such items it would be necessary to adopt a different strategy. The possible options include:
- Ask suppliers to operate more than one production site. This step will have the obvious advantage of allowing the supply of essential materials to continue even if one of the plants of the supplier faces closure. Of course, this strategy is possible only if the supplier is large enough to be able to afford setting up multiple plants.
- Purchase your chemical requirements from two or more sources on a regular basis. Ideally, the suppliers should have their plants at different geographic locations so that natural calamities do not result in supply interruptions from more than one location at any point of time.
- Develop alternate materials to act as replacements in the event of a shortage of the input that is normally used in the production process.
Issues that every manufacturing company should address
To minimize the impact of supply disruptions, manufacturing units need to closely examine the sources of supply of the critical materials that they use in the production process. If a particular supplier faces a plant closure, what is the probable time period required to restart production?
Sourcing chemicals from alternative suppliers can pose additional risks. Will the new supplier adhere to contractual commitments? Is the quality of the chemicals that are supplied comparable to what was being purchased earlier? Will the new source be more expensive?
Each manufacturing organization will have to closely examine its supply chain and arrive at a plan that meets its specific requirements. Although it is not possible to anticipate every contingency, a carefully devised plan that is regularly updated can prove to be an invaluable tool to overcome the negative impact of supply disruptions.
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