The interruption of the supply chain is a constant feature of the morning news. There are signals on the horizon it will worsen, not improve.
The interruption of the supply chain is a constant feature of the morning news. Even more troubling is the fact that there are signals on the horizon that the issues will worsen rather than improve. Unfortunately, current trends imply that the supply chain may not recover to normal levels until 2023 due to the perfect storm of headwinds that created the disarray.
Disruptive periods frequently bring the most pleasing possibilities, and this is no exception.
On the other hand, many firms find it challenging to prepare in the face of so much uncertainty. Pricing has been one strategy for dealing with supply chain issues, but given the long-term nature of what lies ahead, now is one of the most critical times to prepare. Here are six steps to help you get started.
1. Make provisions for disruption.
Too many organizations are immobilized by disruption, waiting for additional data before making a better-informed choice.
There’s no denying that any planning or budgeting process should be comprehensive. Moreover, putting a plan into action is frequently much more helpful than leaving it on a desk waiting for that next piece of information.
So, what if this paradigm was inverted, and disruption became a significant component of the strategy?
This might take the shape of a proportion of income in doubt. Similarly, higher expenditures in specific sectors or a decision to postpone certain investments until you obtain further clarification.
2. Begin with a risk assessment.
What parts of the company might have the hardest if supply chain challenges persist or worsen? How vulnerable is the company’s financial performance to these changes? This may enable particular priority topics and highlight as requiring more investigation.
What are the hazards based on the best-known knowledge today? It might indicate that income has reached a limit, with little or no growth from the previous year, or expenses would rise another 10% in specific sectors.
Based on the specific characteristics in the company, are these high, medium, or low risks? Because context is so important, this will help limit the variables.
3. Make several plans.
Many businesses may already have their budgets in place for the following year. Some are still waiting for things to come together.
In any case, consider employing many alternative versions in your decision-making.
This does not imply that the yearly budget changes month to month, but adopting a high, medium, and low version for management to analyze the future makes a lot of sense today more than ever. If the low version, which includes, for example, a decrease in income and an increase in expenditures, it is acceptable.
Then your business may weather the possible effect of supply chain interruption without causing too much harm.
However, if the low version indicates that the firm is in significant danger, it may be time to be more cautious with business choices, hold off on new projects, or keep a close eye on expenses. You might lose this viewpoint if you don’t look at the photo from various angles.
Plan papers, including budget models, are alive and well. They exist to act as a compass and a tool for making decisions.
As new information becomes available, make adjustments to the strategy and reassess the situation. Aim to do this at least once a quarter, although significant events may need an ad hoc re-evaluation.
For example, a critical supplier may have suddenly informed you of a 60-day supply delay. What exactly does it imply? Perhaps a price rise appeared out of nowhere. Maybe you’ll be able to store goods for later in the year.
These factors may have a significant influence. Keep abreast of all pertinent technology.
5. Make use of the supply chain strategy.
Budgets and plans are generally disliked and feared. They have the potential to become one of a company’s most powerful tools.
After viewing the image on paper, management might opt to take the next step. Play the “What If” game to see how vital choices or circumstances affect the outcome.
Management is better prepared to respond if the worst-case scenario occurs by considering many situations ahead of time.
It’s similar to a hurricane map, where the purpose isn’t to pinpoint the precise location but to provide a range so that people may plan appropriately. You may also utilize the strategy to determine that cone of hazard or safety for the firm in its many iterations.
6. Recognize deviations from the plan.
Assumptions are part of every design. It’s critical to understand why deviations happened.
Perhaps my assumption was incorrect. Should we have recognized we wouldn’t be able to sell all of our inventory?
Maybe it was a case of poor execution. Did expenses rise due to bad purchasing decisions, or did income fall due to problems with the sales team?
Or it may have been an entirely new variable, such as a new market provider.
The “why” keeps the company moving ahead in the long run. Use the strategy to your advantage, ask the critical questions, and stay the course or pivot as required.
Even in a very unpredictable world, planning brings assurance.
What influence will supply chain noise have on your business? Make preparations for them. The correct planning process may be the compass that leads the company through stormy seas. With the focus of intentionality, a perspective from different viewpoints, and timely reassessments.