By definition, Supply Chain is responsible for the continuity of supply and inventory of goods and services. If supply lines are disrupted, or if inventory runs out, Supply Chain is on the hook to restore supply.
Supply disruptions can bring a company to a grinding halt, compromising customer deliveries, revenue and profitability. With the stakes so high it should be no surprise that the very prospect of supply continuity issues can create fear and wreak havoc on the time, focus, and mental well-being of Supply Chain professionals.
How does this Fear of Running Out (FORO) manifest itself in the planning, processes and attention of those in Supply Chain?
What Happens When Supply Runs Out?
Stuff happens. From quality issues to weather disruptions to natural disasters to global pandemics, something will always occur that compromises the supply of goods into your company.
These incidents will curtail production in a manufacturing facility or impede delivery through your logistics channels. The flow of new materials will be reduced and delayed if not stopped entirely, and even on hand inventories will prove to be insufficient to contain the shortfall of new supply.
Supply will also run out due to demand changes. Customers will ask for more than was originally planned for, depleting supplies well within the order replenishment lead time, which will also cause stockouts.
Regardless of what circumstances conspire to create supply shortfalls, the ramifications will be severe and swift. The inability to fulfill customer orders can result in a loss of business, lost revenue, financial losses, legal liability claims, and at its extreme the failure of a business.
Not surprisingly then Supply Chain professionals will be immediately engaged to solve the supply problem and take all necessary and sufficient steps to expedite the restoration of supply. By whatever means necessary (always ethical and legal of course) Supply Chain must get goods flowing again as quickly as possible.
Given the pressure, the intensity, and the stakes involved, the stress associated with solving these supply problems can be overwhelming and alarming. If this stress is managed the resultant adrenaline rush can lead to a productive response. However stress uncontrolled can elicit feelings of panic and fear.
How Do Supply Shortfalls Shape Supply Chain Behaviour?
Trying to resolve a supply shortage is seldom a relaxing and calming experience, to say the least. Customers may be screaming or threatening to take their business elsewhere. Executives may be yelling about revenue and profit shortfalls and missing their quarterly forecasts. And manufacturing managers may be angry because their lines are stopped.
None of these scenarios are pleasant for the Supply Chain professional working to resolve the situation. If you can’t handle this pressure the effect can be quite paralyzing. Even if you can handle the pressure you will want to minimize the likelihood of recurrence of these types of problems.
As such there are two kinds of fears that are endemic to parts shortage situations.
The Supply Chain professional may have a fear of recurrence of the emotional stress associated with dealing with these shortfalls. The pain, stress and pressure that they have experienced from similar prior events makes anyone fearful of having to go through it again.
And because they want to avoid this emotional strain they also develop a fear of running out (FORO). They will want to ensure that they have enough buffers, safety stocks, contingencies and redundancies in place to mitigate, if not eliminate, the likelihood of any future supply shortfalls. They never want to run out of anything.
The fear of the emotional stress can cause people to become demoralized, and at its extreme they may leave the job and even leave Supply Chain entirely. The fear of running out can result in excess and obsolete inventories which can create an entirely new set of problems.
What Can Be Done to Mitigate the Incidence and Severity of Supply Issues?
Not surprisingly companies do not typically want any supply disruptions at all. But they occur anyway. Even the vaunted Just-In-Time models will fail, as the pandemic has proven.
Some industries like restaurants are able to easily get around supply shortages in advance by ‘86-ing’ items. What does 86 mean? Basically, to get rid of an item from a menu if the ingredients or equipment isn’t available. This can cause minimal issues if executed early.
With other industries like construction and manufacturing, reliance on certain projects or orders may be more essential and so you cannot just stop providing them just because you haven’t got the stock. In fact, some factories may rely on a single customer’s order to get them by for several months.
As such there are numerous strategic and tactical measures that can be undertaken to minimize both the occurrence and severity of supply issues.
- Disaster recovery plans
- Dual sourcing maximization and single/sole sourcing minimization
- Alternate supplier/material pre-selection and qualification
- Outsourcing in multiple geographies, and insourcing
- Strategic inventory stockpiles and safety stocks
- Leadtime reduction (order replenishment, transportation, manufacturing)
- Expedited and alternate transit routes (eg. air cargo)
- Establish Executive level relationships and networks with your suppliers to be leveraged in times of need
- Enable end to end electronic connectivity enabling real time visibility and decision making (ie. the Digital Supply Chain)
- Drop shipping and disintermediation of the Supply Chain
- …
Even having all of these measures in place will not eliminate the occurrence of parts shortages. But they will minimize both the frequency and the time to resolution.
Further these measures will help to address and reduce the fear and stress associated with dealing with these situations.
The problem with some of these steps however is that they will likely have other consequences which are also undesirable.
Excess inventories can result in obsolescence and write-offs, notwithstanding all of the costs and demands of storing this inventory. Dual sourcing can split demand amongst multiple suppliers resulting in higher unit pricing and higher logistics costs. In addition extra suppliers require more resources for qualification and performance management.
These steps cost money. Then again having your business disrupted due to shortages costs money as well. A balance as to how much risk a company will accept is necessary to determine how far you go on the step to address the fear of running out.
What Can Be Done to Deal With the Fear of Running Out?
The steps we’ve outlined above will certainly reduce the incidence of shortages, but they will never be eliminated. Because that prospect persists there may always be a fear of running out.
Some people handle that fear and stress well, while others do not. The scenario is inevitable so how do you get over, or atleast become better able to handle, that fear.
Facing that fear, and dealing with it head on, on a repetitive basis, can help improve an individual’s ability to handle stress in the future. It is a great developmental skill no matter what challenges someone may face in the future. Throw someone into the deep end, be there to monitor their progress, and extend a life line if and when needed.
Still, not everyone is made for dealing with this stress. The fear can be paralyzing. Yet the situations must be addressed and resolved.
In one case I had a global department, which I called Supply Line Management, which contained a team of experts at dealing with part shortages. They had the type of personality and demeanor such that any part shortage created an adrenaline rush and positive drive to fix the issue. They lived for that rush and thrived in that stress.
This team provided support, education and oversight to local, geographically dispersed teams. They had built a phenomenal network of senior contacts with all of their suppliers, which they could call anytime 24-7.
Developing, mentoring and supporting the people on the front line is a crucial step. It both reduces the fear that your employees will face when shortages arise, and it increases the chances of successfully resolving the shortages as quickly as possible.
On top of that ensure that your shortage management team gets to meet and develop relationships with all of your suppliers. People respond better to people who they know and have already met. It creates a bond and a level of trust and familiarity which can be very helpful when stresses are high and part shortages need to be resolved quickly.
Conclusion
Fear may always be present to some degree. It is a natural human response. But when a part shortage arises the flight or fight response will kick in. And you can’t have your employees running away from the situation.
The fear of running out references both the fear of supply disruption and the fear of having to deal with that stressful scenario. Both of these fears must be addressed. And they can be addressed by better preparing your Supply Chain AND better preparing your Employees!
If you don’t improve BOTH your Supply Chain and your Employees then you will always be faced with the fear of running out (FORO)!