What is supply chain disruption and how can AI help streamline processes?
In today’s highly competitive market, retail organisations are constantly striving to stay ahead of the curve. With the rise of online retailers, traditional brick-and-mortar retailers are facing increasing challenges to remain relevant. One effective strategy being implemented by many to enhance their operations and keep pace with their competitors is improving their supply chain management. However, this task can be complex and demanding and often subject to supply chain disruption.
In this blog we will explore what is meant by supply chain disruption, how it can be minimised and the role of artificial intelligence in simplifying the process.
What is supply chain disruption?
Supply chain disruption refers to any event or circumstance that interrupts the smooth flow of goods, materials or services across a supply chain. These disruptions can occur due to various factors, such as natural disasters, political instability, economic fluctuations or even technological advancements. The last couple of years have proved particularly challenging with the increase of supply chain disruption as a result of the COVID-19 pandemic, the Russian Invasion of Ukraine and global supply chain delays.
Supply chain disruption can lead to inconsistent stock levels, leading to supply shortages or overstocking, both of which lead to losses in revenue. When products aren’t available customer confidence can be diminished, which can lead to a lack of customer loyalty, and reduced sales.
Retail organisations continue to face immense challenges from online retailers who offer convenience, extensive product selections and competitive pricing. To remain competitive, retail companies must optimise their supply chain processes to minimise disruptions, reduce costs and enhance customer satisfaction.
Key factors that contribute to supply chain disruption
In order to properly manage and mitigate the risk of supply chain disruption, it’s important to understand key factors that contribute to it. They include:
A drop in demand for products
Sudden drops in demand for products can disrupt supply chains by causing overstocking issues. For retailers, this can mean that perishable goods go to waste, profits are reduced as excess stock is sold at reduced prices and storage facilities reach capacity, causing further problems.
High inflation/recession risk
Economic instability such as high inflation or the risk of recession can mean that supply chain costs rise, contributing further to inflation. This also risks business profitability and can damage relationships with customers when higher costs are reflected in raised product prices.
A surge in demand for products that supply chains are not set up for
Unexpected surges in demand can lead to product shortages and scarcity. For example, in March 2020, at the beginning of the UK COVID-19 lockdown, many consumers increased their purchase rate of everyday essentials, leading to empty supermarket shelves and many customers unable to obtain the items they needed.
Reduced productivity at any point in the supply chain can mean that business output is lessened. Labour or equipment shortages can cut productivity, causing either a lack of products being manufactured, or a bottleneck in the supply chain. One example of this is the HGV driver shortage experienced in the UK, which caused product distribution disruption.
Storage and access restrictions
Issues with warehousing, such as storage facilities requiring closure due to contamination, viral outbreak and environmental issues, or issues with access, such as natural disasters or other disruptions blocking transport links can mean that ultimately retailers are unable to stock products, and therefore revenue is impacted.
Raw material shortages
When raw materials are in short supply, productivity and manufacturing slows, creating a shortage of saleable goods. This can happen when adverse weather affects crops, thereby creating a shortage of a particular ingredient or material, when industrial action stops the gathering of raw materials, or when political upheaval causes transport routes to be closed.
How to build resilience into the supply chain to minimise disruption
In light of the ever-evolving economic and political landscape, the need for resilience within the supply chain is more important than ever for retail organisations. Proactivity is essential and supply chain networks must be adaptive, transparent and fast moving to always be a step ahead and manage the risks associated with market changes. Below we explore some of the key strategies for assisting with this.
Being able to adapt to unexpected situations is key when minimising the risks associated with supply chain disruption. This can include:
- Investing in materials and production facilities that can be easily reconfigured when required. For example, being able to change packaging materials for products should the usual material face a shortage.
- Developing a multiskilled workforce. Should members of your workforce be unable to carry out their roles, for example due to illness, labour shortages or extreme weather, having a team that is trained in multiple roles means they can be redeployed quickly, and you can avoid significant loss of revenue.
Decentralise supply and production
Ensuring your business is not relying on a single source of production reduces the risk of severe supply chain disruption. By spreading your procurement across multiple locations and suppliers, you can minimise the impact of location-specific issues and adapt your supply chain quickly should disruptive issues occur.
Inventory and capacity buffers
It’s important to prepare for unexpected fluctuations in stock availability and demand. Inventory and capacity buffers at the final point of the supply chain ensure that there is flexibility, and that shortages, low demand or supply chain disruptions have minimal immediate impact.
Consider the future of your distribution and micro-fulfilment centre locations
Distribution and micro-fulfilment centres need to be strategically placed in order to ensure smooth and rapid access to customers. Long-term planning is important in this regard and monitoring your customer bases and demand levels for growth trends can help to ensure you are pinpointing the most advantageous locations for expedient delivery.
Invest in technology to strengthen your supply chain
Technology solutions can offer a wealth of insight into your supply chain, and help you to track processes using automation, forecast demand or disruption with data analytics, and enhance and advance e-commerce for order management and fulfilment.
The role of contracts in supply chain management
Contracts play a crucial role in supply chain management as they establish the legal framework and obligations between different parties involved in the supply chain. These agreements govern various aspects, including pricing, delivery schedules, quality standards and terms of engagement. However, the sheer volume and complexity of contracts can pose significant challenges for retail organisations aiming to gain insights and streamline their supply chain processes. Manual contract review and analysis are time-consuming, error-prone and may hinder a company’s ability to respond swiftly to changing market dynamics, and should therefore be an automated process to reduce the risks associated with supply chain disruption.
How artificial intelligence can streamline the contract management process
By leveraging advanced technologies such as natural language processing (NLP) and machine learning, contract intelligence software can automate the contract review process, empowering retail organisations to gain a deeper understanding of their contractual agreements. Below are some of the key benefits:
- Efficient contract extraction: NLP algorithms extract essential information from contracts, such as key terms, conditions, obligations and parties involved. This automated extraction process significantly reduces the time and effort required for manual review and enables retail organisations to process a large volume of contracts efficiently.
- Improved contract visibility: Retail organisations can gain enhanced visibility into their contractual obligations and relationships with suppliers, distributors and other stakeholders. By centralising contract data and making it easily accessible, companies can identify potential bottlenecks, risks or opportunities within their supply chain.
- Enhanced risk mitigation: Supply chain disruptions often arise due to unforeseen events or changes in market conditions. Contract intelligence software enables proactive risk management by highlighting critical contract clauses, such as force majeure, termination or pricing adjustments. Retail organisations can identify potential vulnerabilities in their contracts and take proactive measures to mitigate risks.
- Data-driven decision making: By leveraging the insights derived from software, retail organisations can make informed decisions to optimise their supply chain operations. Analysing contract data can uncover opportunities for cost savings, identify underperforming suppliers, streamline procurement processes and enhance overall efficiency.
- Competitive advantage: The ability to extract valuable insights from contracts swiftly and easily provides retail organisations with a competitive edge. By optimising their supply chain management based on contract data, companies can enhance their operational efficiency, reduce costs and improve customer satisfaction, positioning themselves strongly against online retailers.
Leveraging AI technology to assist with supply chain disruption
In an era where retail organisations face intense competition from online retailers, optimising supply chain management becomes paramount. Supply chain disruptions pose significant challenges, but leveraging technology such as MRI Contract Intelligence can empower retail organisations to gain valuable insights from their contracts. By automating contract extraction, improving visibility, mitigating risks and enabling data-driven decision-making, retail organisations can enhance their supply chain operations and secure a competitive advantage in the evolving market.
If you would like to find out more about AI contract management, book a demo today.
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