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Impacts of the supply chain crisis in the industrial sector

Broadly speaking, the consequences of a supply chain crisis are rather straightforward for a company in the industrial sector. They generally comprise of, but are not limited to: Disruptions in productions.

Unavailability of raw materials or components inevitably leads to production delays and increased cost for the finished goods. Logistics challenges and disruptions in transportation caused by global instability and erratic market dynamics, again increasing cost and delays to move goods. Inventory management also becomes far more challenging, making it extremely difficult to manage inventory levels without stock-outs or excess resources. Customer dissatisfaction and loss of market shares can occur due to the company’s inability to meet customer’s demand or deliver products below their quality standards, sometimes negatively impacting the company’s reputation long term.

A supply chain disruption often means a sharp decrease in revenue, while the common operating costs, like manpower, are not that easy to cut, nor beneficial when considering a mid to long term time horizon.

When facing a supply chain crisis, it is also very difficult to anticipate and focus on the future, most of the energy is spent on present problems. This is detrimental to the company’s ability to ensure business continuity and growth in the future. 

There does not exist a miracle solution to eliminate the risks or the consequences of a supply chain crisis.

However, a set of good practices can be put into place, preventively and curatively, to alleviate the impact of a supply chain disruption. The first one might seem obvious, but supplier diversification is a crucial aspect to mitigate the risk of supply chain disruption.

Having a set of reliable, trustworthy, and as uncorrelated as possible suppliers should come as a top priority. Having good inventory management and  building up inventory levels of critical raw materials and components can really make a difference when facing supply chain disruptions, especially in the case of moderate or short term interruption.

Everyone knows it is better to be prepared for a crisis beforehand, than reacting to it in the middle of one. Having a crisis management plan in place can help to quickly and effectively respond to supply chain disruptions, minimize the impacts, and get back to normal operations as soon as possible.

Building resilience, by adding redundancy or investing in new technologies can also be very helpful to be able to withstand disruptions.

Proactive monitoring and risk assessment may not always be enough to prevent a supply chain crisis altogether, but it will allow the company to anticipate, make better-informed decisions faster, in order to reduce the impact of disruptions. Considering alternative sources for key inputs, such as raw materials, components, and finished goods, can provide a fall-back option in case of disruptions. Maintaining good communication channels with customers, by keeping them informed of the situation and providing regular updates can help to maintain trust and minimize the impacts on customer relationships.

Finally, prioritizing critical products will often be a necessary decision to reduce, as far as possible, the impacts of supply chain disruptions on the company’s operations and revenue. 

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