Avoiding supply bottlenecks – securing the supply of goods

Consumer demand is subject to constant fluctuations. If companies do not react to these in good time, this can lead to an imbalance in the supply chain.

Crises, such as wars or political instability, hinder the flow of goods in some regions. This can lead to suppliers no longer being able to deliver their goods or imports becoming more expensive due to customs duties.

Economic uncertainty has a significant impact on the availability and cost of raw materials and intermediate products. During this time, companies are often confronted with declining orders or high import costs.

Limited transport capacities, such as a lack of drivers or overloaded rail traffic, can lead to delays in delivery. Other causes could be infrastructure problems or regulatory restrictions, such as customs procedures, which are particularly evident in cross-border transportation.

A company’s ability to produce and deliver products on time can also be affected by internal factors such as:

• technical malfunctions in production facilities,

• labor strikes,

• and a shortage of qualified workers.

The availability of essential raw materials such as steel, cement, concrete, semiconductors, (semi-) metals and rare earths is limited. This can be caused by limited natural deposits, increasing demand or political and economic conflicts.

Weather conditions can have a major impact on the availability and production of goods. For example, extreme weather events such as storms, droughts or floods can reduce crop yields.

Strict regulatory requirements and lengthy approval processes can delay introduction and production. Environmental and safety standards also add to the complexity.

In a company with a mature supply chain, the dovetailing of short, medium and long-term planning is a matter of course. A sales forecast is used, which is determined using both mathematical algorithms and up-to-date expert information from the sales department.

The aim is to derive the most accurate planning possible for future requirements. The holistic planning approach enables a data-based forecast, current inventory values, the outlook for further material procurement and dedicated production capacities. It also has the potential to identify impending bottlenecks at an early stage. This enables the company to act proactively and in good time.

The market for intelligent planning software, which includesSales & Operations Planning (S&OP) , is growing rapidly and is helping to stabilize supply chains. With the help of tools and a well-thought-out S&OP process, it is possible to make decisions in real time. Powerful algorithms precisely match demand with supply and allow different scenarios to be built that take into account or recognize potential bottleneck risks.

The bullwhip effect is exacerbated when those involved in the supply chain lack an understanding of the relationship between the supply and demand situation. At each level of the supply chain, stakeholders often forecast demand using only historical data or buying patterns. However, this approach is not sufficient to create comprehensive transparency about real demand. It therefore cannot serve as a sound basis for decision-making.

One approach to reducing the bullwhip risk is to introduce a vendor managed inventory (VMI) strategy.This allows customer demand to be better tracked and the replenishment of stock to be managed efficiently. A VMI can be used to monitor outflow information and manage deliveries for many customers.

Another tried and tested approach is the use of electronic data interchange (EDI). This allows business processes to be transferred digitally, directly and error-free. In many companies, this is already the preferred method for real-time transfer of data between different computer systems or networks.

With the correct setting of selected information types (EDI message types: DESADV, INVRPT, ORDERS, ORDRSP, PRODAT etc.), additional data can be transferred. In addition to inventories, information from the sales and production planning of the customer base can also be integrated into your own planning process. As a result, the bullwhip effect can be significantly reduced as part of a regular data exchange and real customer requirements can be estimated more accurately and produced in a targeted manner.

On the one hand, it must be ensured that the planned or production dates take into account the customer’s desired date across all production stages, taking into account the corresponding transportation times. On the other hand, on the procurement side, the scheduling system must be used to continuously check when a net requirement actually occurs against the background of stock levels.

Close systemic networking with customers, as described above in connection with EDI, creates transparency. Both the stock situation and the actual customer requirement date are clearly available. This means that it is possible to estimate when an out-of-stock situation may occur.

If this information is not available, intensive cooperation between supplier and customer becomes all the more important. In the event of a bottleneck, priorities must be set together in order to gradually ensure the best possible supply. This approach is very labor-intensive and leads to frequent changes in the production sequence. In addition, any necessary “frozen zone” must be taken into account in order to secure production output.

By comparing the forecast and orders on hand, customers who have significantly exceeded their forecast can be identified. On this basis, production quantities and deadlines can be adjusted in a targeted manner. Rejecting or canceling orders should only be considered as a last resort, for example based on customer classification or margin rates. An exception to this is when you deliberately want to part with a customer.

Our self-image includes having precise knowledge of the production output of upcoming periods and ensuring that all processes are designed to minimize waste. In the event that a bottleneck is foreseeable and plannable, a manageable bottleneck period can be bridged proactively through pre-production.

However, it is not uncommon for companies to be surprised by bottlenecks that have already been creeping up on them. Bottlenecks can be mitigated by introducing measures at an early stage, such as taking a break, having employees operate the system in parallel or setting up additional shifts. Critical situations can be defused with a targeted portfolio of measures. It is important to be transparent about where the bottleneck is in production and how the “Gordian knot” can be cut at that point.

Despite all the digitalization, a key factor remains that the right people and the right team are deployed in the right place. This is only possible if the skills of the employees are documented, e.g. using a target and actual skills matrix including a gap analysis. This includes a regular review of which skills are underrepresented and need to be expanded through training or personnel adjustments.

The right key figures and current inventory parameters help to keep delivery capability at a high level. At the same time, Networking Capital can be used in the best possible way and at the optimum level. Safety stocks, order times and ideal order lot sizes can be defined based on knowledge of replenishment, the delivery time of raw materials and their consumption.

In addition to ranges of coverage, the on time in full quota and checking the stock history, other key figures are also relevant. In particular, the focus should be on the deviation of production performance and the sales forecast (MAPE & trend signal).