Understanding and Prevetning Value Chain Disruption

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In this blog, we will discuss what value chain disruption is, what causes value chain disruption. Additionally, we will discuss how can one avoid any future disruptions before they can happen.

Defining Value Chain Disruption

A definition of supply chain disruption is a disruption in the production flow of goods and their delivery to customers. A supply chain disruption is any event that causes a disruption in the production, sale, or distribution of said products. Supply chain disruptions can include events such as natural disasters, regional conflicts, and pandemics.

Today’s product companies can no longer afford to assume that failure is a remote risk. Not after the last few years. If you’re a product or quality manager and you’re still thinking, “Oh, the worst is over,” you’re either a blind optimist or you just don’t take risk management seriously enough.

Let’s go through the list, okay? The disruption to the value and supply chain  in recent years has been caused by:

A global Covid-19 pandemic blocking the global supply chain

A deadlocked cargo ship blocking trade through the Suez Canal

Government-mandated safety protocols affecting the available labor

Trade sanctions and new tariffs against massive material exporters

War in Ukraine slowing any sourcing from suppliers outside the “breadbasket of the world”

Denying the Attention

Pressing consumer-driven demand for sustainability through the adoption of new technologies. And responsible manufacturing hampered, or even completely eliminated by interrupting the value chain.

Despite all this, there are still many companies across entire industries that are not acting proactively. Opting for short-term, reactive solutions to gradually mitigate supply shocks.

If we’ve learned anything from lockdown, it’s that there isn’t a single critical tipping point for business; there could be several at once, and more on the horizon. At this stage, the key measure of success is how they respond.

So let’s start at the top. First, companies need to understand why their value chains are disrupted, how disruption impacts their KPIs and goals, and what strategies need to be implemented.

Also Read: “How to Tackle The Four Major Obstacles to Value Chain”

Supply Chain Disruption Vs. Value Chain Disruption

When we say “value chain” we don’t just mean the supply chain that gets your product to a customer. We mean anything that adds value to your customers. From design and contract manufacturing organizations to second and third-tier partnerships with vendors , to the support your customers receive when they contact your support channel.

To understand the disruption of the value chain, we must agree with a basic business fact: today’s economy is a global economy.

To win business in local markets, you must outperform and outperform the competition on a global scale. Successful companies have built empires around the world. Thanks in part to complicated supply networks that underpin strategic decisions, challenging logistics management, and vertical integration.

companies take a serious hit when their value chain is disrupted, or worse, disrupted. The impact of unmitigated risk can extend from operations in the supply chain to the inherent value of the end product.

Each link in your value chain has its own set of stressors that are unique to its local characteristics and vulnerabilities. 

Also Read: “Digital Transformation Strategies To Unlock The Value Of The Company”

Consequences Can Be Dire

The impact of supply chain disruptions is so pervasive that even the average consumer now has a basic understanding of supply chain management. In fact, this became clear to everyday shoppers in real-time when they needed to buy toilet paper in the spring of 2020.

Now, lockdown fatigue has prompted a drop in patience. Customers are ready to buy again, but brands are struggling to offer them.

The truth is that what looked like short-term shortages in the initial coronavirus panic have turned into long-term shortages of commodities. In such cases, customers do not always see empty shelves, which are clearly caused by panic buying, but only longer and longer delivery times for which they have no real explanation. Let’s take a look at these consequences as they move through the supply chain and eventually duplicate in the customer experience – the value chain.

Longer Response Times from Suppliers, and Vendor Partners

Behind the scenes, product companies are fighting for the components they desperately need. They expect increasingly longer response times from suppliers and manufacturers, whether locally sourced, based in China, India, or anywhere in between.

Difficult to Acquire Parts, Increased Costs, and Fewer Alternative Options

The next logical step for these companies looking to reduce these wait times is to look for alternative suppliers. Of course, if all product companies are looking for alternatives, these alternative suppliers will also become scarcer, more expensive, or both.

Longer Customer Responses

Businesses cannot offer long-term guarantees to their current customer base, which can affect loyalty over time. The credibility of the brand will also suffer as a result and interested parties will push toward competitors.

Delayed Time-to-Market

With longer lead times for components, the logical effect is a long time to market for new products. Unsurprisingly, new product launches without a firm arrival date is proving to be less effective. When customers start requesting refunds on their pre-orders, you know you’re in trouble.

Smaller Market Cap

After long waits for bottlenecked components and materials, reduced customer retention, and a high rate of returns, it stands to reason that a product isn’t gaining the market share it needs to keep up (let alone beat) the competition. 

Weaker Security and IP Thefts

Although cybersecurity risks may seem to have existed for years, they are no longer vague and distant risks. In 2021, breaches not only occurred at record levels but actually doubled the previous record set in 2013. Vulnerable organizations are left with this seemingly insignificant consequence. Now they wasted time increasing security, possibly finding all the new providers, and recovering the losses.

Also Read: “The Manufacturer’s Guide to Accurate Planning and Forecasting in Supply Chain Planning”

Prevention is the First and Best Solution

While we just ranted about some pretty severe impacts that a multitude of companies are currently feeling across industries, building resilience in the value chain remains a real possibility.

With advances in technology so rarely adopted, product companies have every opportunity not only to gain an advantage over the competition but to outperform them completely.

According to McKinsey, “technology today is challenging old assumptions that resilience can only be bought at the expense of efficiency. The latest advances offer new solutions for running scenarios, monitoring many layers of supplier networks, speeding up response times, and even changing the economics of production.”

 

KloudPLM for Disruption Prevention

solutions like KloudPLM help product companies face the next disruption with confidence by empowering stakeholders to connect at every step of the value chain, from concept designers to product managers, QA, and R&D teams. With this built-in workflow automation, any potential issues are immediately flagged and propagated.  Allowing teams to work together to resolve the issue while reassuring customers (if needed).

It’s not too late. Maybe the best time to plant a tree was 20 years ago, but the next best time is now. Although product companies have been rocked by a multitude of macro crises on a global scale (the pace of which seems to be accelerating), they have also been driven by the need to adopt preventative and proactive solutions.

Companies that fail to adopt modern processes have accountability to their stakeholders for failing to identify and mitigate recent risks to their value chain. Learn more about how KloudPLM can help you protect and innovate your value chain. To learn more about our robust cloud-based system, schedule a demo today

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