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Avoid supply bottlenecks

- the main causes and what you can do about them

A blue truck is unloaded at a loading ramp and then reloaded.

Delivery bottlenecks are among the worst problems a company can have. If you can't deliver, you have to reckon with lost customers, declining profitability and, in the long term, employee turnover. What are the causes of delivery bottlenecks and how can they be avoided?

Table of contents

1. why do supply bottlenecks occur?

Causes of supply bottlenecks differ depending on the industry. For example, while waves of illness are a problem in the pharmaceutical industry, which can lead to poor availability of medicines at times, other industries are much less subject to fluctuations. There are also special cases such as the chip shortage, which since March 2020 has affected not only the electronics sector but also adjacent industries such as automotive production.

The most important reasons for supply bottlenecks can be found here:

  • Transport problems
  • Shortage of raw materials (for example copper, aluminum or wood); also affects packaging materials
  • Natural disasters
  • Legal problems (certifications, approvals or even sanctions)
  • Technical problems (for example with IT systems or with production facilities)
  • Quality defects at the supplier
  • Seasonal or otherwise related fluctuations
  • Changed market situation (company acquisitions, consolidation)
  • Lack of inventory (for example, due to faulty planning)

 

2. the consequences of supply bottlenecks

Delivery bottlenecks at your company mean that your customers do not receive their goods on time or in full (or both). As a result, your customers no longer perceive you as a reliable supplier. They migrate to the competition and you have to deal with lower sales expectations.

 

So economically, supply bottlenecks can have major consequences for you. But they also cause problems within your company: If manual rework is constantly required, processes have to be adjusted or corrections have to be made, your employees will become dissatisfied in the long term. For you, this means that personnel costs rise and you have to reckon with increased employee turnover.

Special case automotive industry: Automotive manufacturers (also OEMs) are regarded as particularly demanding customers. They generally keep a close eye on the delivery reliability of their suppliers Delivery reliability is a key figure that measures the delivery of the correct quantity at the correct time. Contractual regulations specify the consequences that poor delivery reliability can have for the supplier. Accordingly, delivery bottlenecks have particularly drastic consequences in this industry.

So it's definitely a good idea to be prepared for potential supply bottlenecks or to have a good contingency plan ready. For this to succeed, it helps to get to grips with exactly where your problems are coming from, because only then can you take action against them. 

What are the consequences of poor delivery reliability?

The key figure delivery reliability is central to the company's success. If delivery reliability is too poor, you can expect drastic consequences. These affect far more than just the satisfaction of your customers. You can find out about the other consequences if you repeatedly deliver the wrong quantity at the wrong time in our clear table.

Effect on Area Follow Worst Case
Customer dissatisfaction Total company, sales Loss of trust/reliability Migration to competitors, loss of market, loss of orders/customers; overall poorer sales expectations
Sales losses Total company Investment freezes, declining growth opportunities Liquidity bottlenecks in the absence of reserves
Deteriorated customer relationship Total company, sales Increased expenses for measures to retain and win back customers (credit notes, bonus payments, goodwill payments, win-back campaigns) Customer loss
Increased costs/expenses Overall Company, Finance & Controlling, SCM Contractual penalties for delayed delivery; increased costs for special freight not included in calculation Liquidity bottlenecks in the absence of reserves
Pricing strategy Distribution, Purchasing More difficult position in price negotiations (prices can be depressed in future orders) Cost/benefit ratio; overall declining profitability
Increase in opportunity costs SCM, logistics, SCM controlling High capital commitment costs, increase in warehousing costs, poorly coordinated processes within the supply chain, capacity bottlenecks in the warehouse Deteriorated profitability, high opportunity costs (tied-up capital cannot be used for investments), high interest costs for the tied-up capital
High capacity utilization in production Production, production planning, SCM, logistics Increased equipment set-up times, deterioration in efficiency, deterioration in overall equipment efficiency (OEE), worsened planning Inefficiency of the company
Failure to achieve internal target agreements such as "increase OEE" or "reduce special loads". Personnel, HR, Recruiting, Team Dissatisfaction of employees/managers (impending loss of bonuses or premiums and consequent loss of motivation) Fluctuation, capacity bottlenecks

3. how to avoid supply bottlenecks?

The most important internal and external factors

External factors: Problems in the supply chain

Whether it's Corona, freighters in the Suez Canal or international crises: Global supply chains harbor risks that can have a direct impact on your deliveries. There are various strategies to counteract them.   

  • Shorter transport routesThose who purchase goods primarily from suppliers in Asia or other far-flung countries have long transport routes and accordingly cannot reorder goods at short notice. The risk of problems on long transport routes is high. In addition, there are political influences that can cause deliveries to be suspended very quickly. An alternative here can be more local suppliers who, if not in the same country, then at least in neighboring countries and can deliver faster.
  • Diversification of the supplier network: If you don't try to find alternative suppliers only in an acute emergency, you have a clear advantage. A broad network of different suppliers from different countries of origin offers you security. You can also plan to use a cheaper main supplier and fall back on more expensive suppliers when the load is higher.
  • Adapt procurement strategies: In addition to a broad-based supplier network, planning is also a crucial point: What processes have you implemented to acquire and commission suppliers at short notice? Also note that a consistent exchange between sales and purchasing helps to better estimate capacities.

 

You can rarely influence external factors. However, you can be prepared for them when they occur. Planning and simulation are effective ways to counter problems as quickly as possible. The time you have to put into this preparation is usually worth it, however, as you then do not have to bear the economic consequences of delivery failures.

Internal factors: problems with transparency

Internal problems are usually well summarized by the term transparency. Too often, companies only have basic software systems in place, but these do not map many individual processes at all. It is not just a matter of recognizing delivery bottlenecks at an early stage. The problem usually arises earlier:

  • Inventory and warehouse management: When it comes to inventory management, balance is key: the security of high inventories contrasts with high warehousing costs. In addition, the risk of damage or spoilage also increases. Which strategy is best here is highly individual. However, the following applies to all companies: Transparency is the best means of determining the right strategy. Suitable software solutions can also simulate what effects changed strategies have on the ability to deliver.
  • Order Management: In many companies, order management is the central hub for correctly allocating resources and capacities. This cannot function if the number of customers, goods, suppliers and orders is no longer manageable. Dispatchers or supply chain managers depend on being able to react quickly and find solutions. This can only be achieved with the help of end-to-end digitization. However, many companies are unaware of the potential for optimization, especially in order management.
  • Employees as a resource: The shortage of skilled workers is also a major problem in logistics. Not only are there too few qualified employees. Staff turnover is particularly high when satisfaction levels drop. If there are constant problems with deliveries and customer satisfaction, the risk of losing employees increases. Combined with workload peaks or seasonal fluctuations, the situation doesn't get any easier. Here, too, it is a matter of making the best possible use of the available resources.

 

Transparency seems like an empty buzzword. But in this case, transparency is crucial: it's about how much you know about the current state in your company, how sensibly your inventory management is planned, how confidently you can promise deliveries, and how quickly you can respond. The more time you have to invest to identify and solve problems, the more expensive a supply bottleneck will be. 

4. identify and solve problems faster: How digitization helps against supply bottlenecks

Digitization offers considerable opportunities for improvement. To avoid supply bottlenecks, it would be necessary to analyze data at an early stage to anticipate problems. Rising or falling trends are often identified manually instead of being detected by the systems. Although many companies are already using digital solutions such as SAP systems, the full potential of the available data is not yet being realized. The solutions are not implemented or configured correctly, functions are not used, and data is poorly maintained.


Better IT support in all areas can help to optimize processes, work more efficiently and avoid delivery bottlenecks. There is considerable potential for optimization in many companies that has not yet been exploited.


These are the benefits you can expect when you use digital solutions to avoid supply bottlenecks:

  • Massive time savings compared to manual evaluations of your existing data
  • Optimized transport control
  • Short-term informative capability in the event of disruptions in the supply chain
  • Improved planning and simulation of malfunctions
  • Avoidance of errors during manual preparation
  • Standardized documentation of agreed purchase quantities
  • Standardized deposit of bottle necks in the own production or logistics
  • Tangible basis for negotiations with customers on delivery reliability evaluations

 

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