6 ways to manage material shortages the smart way and meet supply chain SLAs

Disruptions to supply chain operations are set to stay, whether they be existing or new geopolitical conflicts, demand spikes, inflationary pressures, weather hazards, or labor shortages.

“In early 2024, geopolitical developments and technological advances continue to affect how supply chains and companies conduct business,” confirms Marisa Brown, Senior Principal Research Lead at APQC in a recent Supply Chain Management Review article.

And the only way to cope with inventory shortages seems to be working in constant firefighting mode.

The only good news is that there are tons of ways to manage materials with intelligent solutions, and create an agile, resilient, and transparent supply chain. Here’s six.

Read about 4 shortage management challenges supply chain leaders should have on their radar in 2023 and beyond.

How to manage material shortages (and disruptions in general) the smart way

1. Invest into digital technology

To get out of firefighting mode, you need to shift your mindset: from reactive to proactive, from backwards- to forward-looking. While some companies are still trying to tackle today’s supply shortages with yesterday’s tools (looking at you, Excel spreadsheets), others have recognized the need for digitization, shifting their ERPs and other operational systems to the cloud or putting more computing power behind their supply chain operations.

In fact, 6 in 10 global organizations plan to invest in digital technology to bolster their supply chain processes, data synthesis and analysis capabilities, KPMG wrote in their Supply Chain Trends Report.

By taking advantage of digital technologies — such as AI, machine learning, intelligent automation, the Internet of Things (IoT), digital twins, and process mining — companies can increase predictability, scenario planning, visibility, and agility.

Look for solutions that give you:

• real-time transparency into how products really flow through your global supply chain network.
• automatic detection of inventory at risk of understock – and its impact on adjacent processes like production and sales.
• intelligent automation capabilities to reallocate and replenish stock where it’s most needed when you’re threatened by slow material supply or even a stockout.

2. Look beyond inventory planning solutions

To mitigate risks and cope with the volatility of demand and supply, supply chain organizations should look into scenario planning tools.

Scenario planning can help you forecast your inventory needs and create contingency plans to avoid stockouts, overstock, and deadstock. But even advanced inventory planning solutions aren’t the answer to all inventory shortage problems.

No amount of scenario planning can predict the next big shock to your supply chain. And even the best simulation isn’t worth much if it doesn’t give you a quick fix when a stockout actually hits.

That’s because, by design, planning solutions focus on potential disruptions in the future, simulating their impact on orders that are weeks if not months out. Even their ‘short term’ scenario can be as much as four weeks out. So if supplier shortages hit today, a tool that can only look weeks ahead is already behind.

To manage material supply and shortages intelligently and immediately you need real-time:

• insights to know which materials to prioritize (based on customer impact) when it comes to reallocating or replenishing scarce materials.
• intelligent recommendations and automation to reallocate and replenish stock where it’s most needed.

Ideally, you want both transparency and action packaged into one solution that connects to the systems and processes you already use.

3. Supply chains need be understood end-to-end

We’ve already established that material shortages are here to stay. So your best bet is softening their impact. But that’s easier said than done when you don’t have end-to-end visibility of your supply chain.

Hundreds of finished goods and thousands of customers can be affected by a single material shortage. So where do you start? Which orders should you focus on? To which plant should you reallocate materials? And how will these decisions impact upcoming orders?

A real-time 360° view of your supply chain and material movements can help you fully understand and handle the impact of supplier shortages. If you see how everything affects everything else — customer orders, suppliers, plants, products, components, and inventory levels — you can reallocate materials where they are most needed and make informed decisions about when to pay those extra dollars for express shipping of critical materials.

Related reading: Freudenberg + Celonis: “Celonis makes material shortages more transparent than ever. It helps us make better decisions and find better solutions.”

Having a single source of truth about your inventory shortage situation breaks down silos and stops your supply chain teams from pulling together incomplete reports. Instead, they get time to focus on what to do about it.

4. Boost collaboration across departments

Data-driven insights into all the links of your supply chain will help solve the silo problem. When everyone — fulfillment specialists, material planners, production planners, sales reps — can see how their department affects, and is affected by, supplier shortages, you can reconcile conflicting interests and concentrate on problem solving.

No more rushing orders simply because one team made more noise than the rest. No more reordering materials you don’t really need just because their stock levels are low.

5. Optimize your supply chain, process by process

As for all problems that seemingly don’t have a solution, it’s worth coming at shortage management from a new angle. To outsmart inventory shortages, you need to look at the very thing supply chains are made of: processes.

Supply chains are one mega-process made up of lots of connected micro-processes. And since everything affects everything else, fixing these individual processes has a huge impact on your overall supply chain performance. If you handle credit and delivery blocks better, you’ll ship faster. If you can quickly identify alternate sources of stock and prioritize material allocation based on impact, you’ll reduce stockouts. And if your Procurement team works with realistic lead times, you can ensure uninterrupted material supply for production.

As the co-founder of a Fortune 500 company innovating in science and technology put it at the Celonis CEO Council: “Trying to compete in today’s business without running on process data and intelligence is like trying to win the Master's with only a driver and putter in your bag.”

Learn more: Why all supply chain optimization efforts need to be process-led in 2023

6. Add intelligent automation to the mix

Adding automation into your supply chain is key to bounce back fast when a stockout hits. But you need the right kind of automation to manage materials the smart way. One that goes beyond RPA bots simply automating repetitive tasks such as data entry, order processing, and shipment scheduling.

Imagine intelligent automation that autonomously transfers materials to plants where they’re most needed, helping you exceed service levels and reduce order delays. That identifies which materials are production-critical and triggers replenishment before you run out of stock. Sounds like sci-fi? Not if you enrich automation with process intelligence to make the right decisions at the right time.