7 Important Considerations for Addressing Supply Chain Bottlenecks and Shortages

To anyone paying attention, uncertainty is becoming more intense with each passing day it seems. And in this particular moment, supply chain bottlenecks and shortages are fueling much of this uncertainty.

I think you’ll agree – besides seeing masks everywhere, one of the most visible and ubiquitous signs of the COVID-19 pandemic over the last year and a half has been shortages caused by supply chain issues.

Some of these shortages are for seemingly miniscule things we take for granted, like ketchup packets or my son’s favorite crackers.

But other shortages and supply chain bottlenecks are impacting larger scale industries like autos, medical devices, and more.

Take the auto market.

Before leaving for our annual trip to the mountains earlier this month, my car needed a new battery, so we trekked over to our local Honda dealer to get a replacement.

However, as you can see from the picture below, you could easily get the impression that the dealership is going out of business. A salesman told us that this long-standing dealership in our hometown usually has 400 new autos on the lot, but currently, the number ranges between 40 and 50.

supply chain bottlenecks

You read that right – a mainstay dealership in Florida’s capital city only has 10% of its usual stock available on the lot.

The same salesman told us that shortages for microchips and other materials have led to production delays. Another close contact whose firm supplies components to auto manufacturers is experiencing extensive delays in procuring raw materials.

It’s hard to pinpoint the exact reasons for these shortages, but it usually boils down to dramatic increases in demand, low supplies in raw materials, a shortage of workers, or a combination thereof. As Ryan Petersen, CEO of shipping software company Flexport, explains in this interview:

Once one domino falls, it takes several with it and it can be difficult to predict where things will end up.

Whatever the reasons for these current issues, this situation shows the importance of a complete evaluation of your company’s vendors since…

Any interruptions in this dynamic supply chain can have wide ranging impacts for your company including lost revenue, a damaged reputation, and disgruntled investors and customers.

Below are seven important considerations for avoiding supply chain bottlenecks and shortages or mitigating their negative impacts as best you can…

1.   Don’t just look at immediate vendors.

Let’s consider the following situation involving one of our clients (in the manufacturing industry), who performs basic supply chain management.

This company relies on a vendor for a particular component to produce many of its devices. However, the vendor is having trouble obtaining materials from one of their suppliers, who cannot supply enough critical raw materials. Without the components, the company will be unable to manufacture a large majority of their products.

What this example shows is there are several layers to consider when it comes to your supply chain. Depending on the circumstances, it’s possible to have 5th party suppliers like the following illustration shows.


2.   Prioritize critical processes, components, and services

Depending on the size of your company and what you do, it’s possible (or even likely) that you could have hundreds of different vendors, especially when you factor in potential 4th and 5th parties. Unless your company leaders have given you unlimited funds and manpower (…which I highly doubt), evaluating each and every one of these will be overwhelming.

Therefore, you have to prioritize where you spend your time, and one way of doing this is to first look at the most critical processes, components, and services. Separate the ones that are handled 100% internally vs ones where you rely on an outside party.

Be cautious though – just because something is handled internally doesn’t mean you can ignore it. If it’s critical enough, it won’t matter to your customers whether the breakdown happens within your doors or somewhere else.

3.   It’s a two-way street

Remember a supply chain goes both ways, so it’s vitally important to understand the companies or organizations who rely on your products and services because you are part of their supply chain…it’s quite possible they’ll be asking you many of the same questions you should be asking your suppliers.

To learn more about this specific aspect of managing supply chain issues, visit Impacts of Russia-Ukraine War Accentuate Need to Examine the Full Spectrum of the Supply Chain.

4.   Diversify, diversify, diversify

Financial advisors counsel investors on the importance of diversification…if one particular investment goes down, theoretically you should be okay since the other investments pick up the slack. Much the same can be said for vendors. If a particular supplier is down because their facilities were damaged from a hurricane or a large number of their workers became ill, having an alternative supplier that can pick up the slack will be tremendously helpful in avoiding any disruptions.

5.   Use contract language to protect your company

While it’s advisable to have alternate suppliers available, sometimes that isn’t possible or is impractical. Regardless, one way to protect your supply chain is to include language in your contract requiring your 3rd party suppliers to diversify their vendors. Even before the pandemic, many supply chain breakdowns and shortages occurred because a 3rd-party vendor only had one supplier that suddenly went offline.

Another possibility is to require your supplier (or even 4th party supplier) to purchase a surety bond, which as explained here, is a legal document that requires the supplier to pay a retainer to a bond company to guarantee the fulfillment of a contract. Your company can further protect itself by requiring the supplier to purchase a third-party fidelity bond to compensate you in the event of intentionally wrongful acts, such as fraud, theft, or forgery. (Check with your company’s insurance broker/agent for recommendations and details…)

6.   Vendor management is for everyone

Although our examples above are from manufacturers, don’t assume that these steps don’t apply to you just because you’re not this type of company. Every company, whether you provide a product or are a service-provider, relies on suppliers in some form or fashion to meet the needs of their customers. A breakdown in any supply chain can have disastrous consequences for any organization, so don’t ignore your vendors just because you’re not in manufacturing.

And last but not least…

7.   Don’t throw your hands up and say “this is how we’ve always done it.”

One excuse I hear from companies when I ask why they do something a certain way is that this is how they’ve always done it, which is like nails on a chalkboard to me. I cringe anytime someone says it…

While traditions do have their place, it’s important for companies to be open to new ways of approaching problems. As we discuss often, the world is changing at a pace that will only continue to accelerate. Agility, be it with your suppliers, workforce, or strategy, will be the one common thread of successful companies in the years ahead.

As I’ve written in this example on what can happen with poor vendor risk management, breakdown in your supply chain can have disastrous ripple effects that can put your company’s success in jeopardy. If customers are unable to procure goods and services because of a supply chain breakdown (…or any reason for that matter), they’ll either lose interest or be forced to look elsewhere.

Taking steps outlined above not only helps your company avert failure but also positions you (and your company) for future success and new opportunities, especially over competitors or even vendors who are not taking steps to understand their supply chain.

Has your company’s supply chain been impacted by recent bottlenecks and shortages?

What steps have or are you taking to address these impacts and prevent future delays?

To share your thoughts on this important and timely topic, please don’t hesitate to leave a comment below or join the conversation on LinkedIn.

And if your company’s supply chain is experiencing difficulty or you simply want to proactively take steps to prevent a breakdown, reach out to me to figure out the best approach quickly.

Featured image courtesy of Samuel Wolfl via Pexels.com

Posted in

Sign Up For Our Newsletter

Sign Up For Our Newsletter


Meet Carol

Helping companies achieve their vision and strategy, and succeeding in today's turbulent world, is something I'm honored to be a part of. Whether you're an occasional blog visitor or a long-term client, thank you for letting us be a part of your journey.

Most Recent Posts

The 12 Days of ERM Christmas

Without a doubt, one of my family’s favorite holidays is Christmas. Part of the fun, especially for our son, is seeing what “Santa” brought, but most importantly, we treasure the spirit of peace and goodwill the season brings. And after what seemed to be a never-ending warm spell, the weather is expected to be good…

Read More

Don’t Let Goals and Initiatives Be Blindsided by External Events

As the end of the year draws near, I think we’d all agree that while it wasn’t without its challenges, this year also wasn’t quite as turbulent as the previous two. While a lot of people are juggling company parties, shopping for friends and family, and special activities for the kids, most companies are putting…

Read More

Going the Distance: Ensuring Successful Execution of Strategic and Annual Initiatives

Strategic planning is a challenge – of all people, I understand… After all the meetings, risk and data analysis, and brainstorming of the preceding months, it’s tempting to think this is the end of the road and you can relax. Contrary to this common perception though, this is exactly not the time to relax, but…

Read More

Avoid Rookie Mistakes and Protect your Internal Reputation

Be honest – have you ever done something that you soon realized was a real rookie mistake? Me raising my hand… Considering the nature of ERM’s role to ask questions and challenge assumptions (often during conversations with executives), it can be argued that, in at least some cases, the expectations bar for risk professionals is…

Read More

ERM at Thanksgiving – An Illustration of Risk Management in Action

On occasion, I like to take some of the concepts we risk professionals think about in our jobs and apply them to different personal situations…take some of the same concepts we use when working with executives to develop corporate strategy and manage risks or uncertainty around that strategy. It’s Thanksgiving week in the U.S. –…

Read More

Why Quantitative Risk Assessment is Not Just the Best But the Only Option – A Conversation

Periodically, I have the pleasure of speaking one-on-one with Hans Læssøe on a variety of topics around ERM, strategic risk, and other issues and trends. As you know from my previous conversations (here, here) and posts featuring his work, Hans was formerly a practitioner at the iconic LEGO Company, but even more notably, is a…

Read More

The Three Lines Model – 3 Reasons Why I Don’t Like It

Everyone likes a clear-cut template that offers an easy way to create or manage something…I mean what’s not to like about a step-by-step process for accomplishing what you want? Sometimes this can work without any issues, such as the case with the Project Management Book of Knowledge (PMBOK), ISO 9001 standard, or a new cooking…

Read More

5 Avenues for Expanding your ERM Knowledge

One thing I was taught to appreciate from a young age was the value of education and knowledge. It didn’t necessarily matter what the subject was, just that I always maintain a learning or growth mindset regardless of my current status in life. This mindset has served me well over the years, and it’s a…

Read More

Storytelling and Risk Management – Developing Skills that Technology Cannot Replace

It’s amazing how technology has developed and changed our working world over time. Imagine trying to run my risk and strategy consulting firm without tools like Zoom, Box, Slack, and other ERM-specific technology tools. There is no way we would be able to serve our clients the way that we do. Just consider how the…

Read More

3 Phases to Creating and Launching an ERM Program Focused on Organizational Success

If you’ve been handed the task of creating an ERM program for your organization, let me first offer my congratulations quickly followed by my empathy for the task ahead of you. I don’t say that to scare you but to provide a small dose of reality. Building, launching, and refining an ERM program that is…

Read More