Choosing the Best Supply Chain Fallback Plan

Published on: April 17, 2020

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At this point in the history of human race, we all have a lesson to learn about making plans. Manufacturing businesses are not left out of this moral lesson class; their lack of foresight by dealing with only a single supplier through the production chain. Not just a few manufacturing businesses are caught up in this dilemma, but most of them. Majority of OEMs have made the errors of putting all of their eggs in the same basket.

Choosing only a single supplier was in their bid to cut low the production cost. This is done by choosing a single supplier who supplies at the lowest cost. These suppliers are often situated in the low-wage region of the world. In a time like with numerous unknown factors, it has increased uncertainties further clogging supply chain.

Possible Risks in Supply Chain Management
Disruptions are bound to occur in supply chain management. What is not meant to occur is absence of a containment plan. When a breakdown occurs in the production nodes and its traceable to the supply chain, another plan is meant to take charge until supply is restored in the main line.

There is a need to have a supply chain fallback plan as a manufacturing business. Different man made or natural events can hinder the supply chain channel e.g. natural disasters, pandemic, custom delays, fire outbreak, and many other unforeseen problems. A supply chain fallback plan must be able to recognize a disruption in the channel, and the ability to recover from the disruption by kick starting the fallback plan.

The Nokia and Phillips NV Story
On March 17th, 2000. Thunderstorms affected New Mexico which hosted one of Phillips NV plant. This plant was the production hub of semiconductors for Nokia phones. It was at a period when Nokia was the world major supplier of mobile phones. As soon as Nokia noticed that there is a disruption in the supply chain, a plan B was initiated to cover for the one-week delay in the production and shipment.

In the absence of a supply chain fallback plan, Nokia would have lost out on 5% of its annual production. Different supply chain fallback plans were initiated both by Nokia and Phillips NV, which resulted in on time shipments of mobile phones to Nokia customers with zero delays. In the end, Nokia put in place different mechanisms to prepare for incidences like this.

Firstly, Nokia implemented a dynamic visibility system to monitor shipments from all its major suppliers. Most importantly, Nokia also carried out a risk assessment of all of its major supplier. This led to the created of contingency fallback plans at different locations. Even though Nokia trained all of its suppliers in risk management plans, they did not stop there. Nokia did an evaluation of its overall supply chain network to ensure that there is no single supplier for all of it major component.

The Need For Backup Suppliers
Disruptions are bound to happen and what differentiate a good manufacturing supply chain management is readiness for these disruptions. The development of backup supplier will ensure that a supplier does not put a stop to the entire production process. One idea to achieve this is to identify other potential suppliers and go into an agreement to serve as back up supplier during a disruption.

Applying this diversified supply chain strategy is actually cheaper as the contingency supplier only kicks starts when they are needed. However, with a diversified supply chain, a manufacturing firm must be ready to absorb costs of maintaining the backups suppliers, regardless of whether a disruption occurs or not.

Other Options Available As a Supply Chain Backup Plan
There are other contingency options available to any manufacturer and they include;
• Stockpiling of inventory
• Diversification of the supply base
• Management of the product demand
• And strengthening of the core supply chain.

Regardless of the combination of options a manufacturer decides to utilize, having a foresight of what the future looks like is essential. With a contingency backup plan, a manufacturer will have advantage over the competition.

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