6 Methods for Addressing Supply Chain Vulnerability
Can you recall the global supply chain ever receiving more attention and scrutiny than it has in the past three years? The global pandemic wreaked havoc on “business-as-usual” for virtually every manufacturer, particularly in regards to how the world produces, manufactures, and distributes goods.
The recent crisis highlighted the fragility of the global supply chain. And today, challenges persist, ranging from labor shortages and shipping delays to inflated costs and increased demand for goods.
In an effort to be more efficient, today’s supply chains are designed to take advantage of economies of scale, which drive down costs and drive up revenue. However, the downside of this action is an over-dependence on specific countries for certain categories of raw materials and goods. For example, China produces 40% of the world’s active pharmaceutical ingredients (API), the ones fused to make antibiotics and painkillers.
But despite the risk, global supply chains have functioned remarkably well for over two decades. That’s why so many companies were caught off-guard in recent years. Because they didn’t fully understand their supply chains, including where key raw materials come from, they could not accurately project the severity of the situation in front of them.
In response to the challenges that persist – and to inoculate their businesses from future shocks – supply chain leaders, collaborating with their procurement specialists, need to implement strategies and take direct action to mitigate risk and prepare themselves for the new normal. As well, CEOs will reassess their balance sheets, focusing on key areas such as:
- Cost reductions driven by “zero-based budgeting”
- Understanding the overall risk exposure of the company and its effect on supply chains
- Key factors that would disrupt business continuity
Below are six proactive actions supply chain leaders can take to address the above problem areas immediately and over the long-term to fortify their supply chains.
1. Fast Track Alternate Sources for Parts
If you are ramping up production or pivoting your product line, you need to assess your inventory quickly to identify where you have exposure for parts shortage as well as where excess inventory exists. Do you have a clean, master parts list without duplicates? What about finding alternate parts or substitutes to take advantage of inventory you may have already? Are you too reliant on China for your manufacturing?
If you are able to identify potential alternates or substitutes in your inventory or supply chain, you can fast track their approval, meet your demand, and ensure business continuity. If you are pivoting to a new product line, the sooner you can match engineering specifications and identify new sources of supply, the faster your time to market.
For example, hundreds of companies around the world, including Ford, Apple, Dyson, and LVMH, have pivoted to produce products that use the same raw materials they source but for entirely different (and beneficial) purposes.
2. Supplier, Distribution Exposure Assessment
You know where your key suppliers are located. And maybe you also have a pulse on their financial health. But do you have the same view across the board on all your suppliers and their subsidiaries? What about your distributors?
You need a complete understanding of your supply chain to assess your exposure in terms of not just your suppliers’ factories but also where distribution could be affected. Enriching this data with supplier balance sheets and factory closing/opening information could be very insightful in sourcing alternate supply options.
3. Fast Supplier Onboarding
It’s likely that you will need to onboard new suppliers, from new geographies, in record time. Do you have the data you need to understand which suppliers meet your company standards for sustainability and corporate responsibility?
As stated in the beginning of the article, the work that you’re doing now has extremely high visibility. You can’t cut corners when onboarding suppliers. Luckily, an efficient supplier onboarding process, powered by multiple 3rd party data sources such as Dun & Bradstreet, can ensure you don’t have to. But the question remains – do you have an efficient process for stitching all this data together?
4. Monitor Price Variances and Understand Root Causes
If raw material prices are changing rapidly and affecting supply chain movement, then the effect will show up in your bills of material cost. But do you know which suppliers provide you with the best price and how often are you leveraging them? For instance, has the cost of your oil-based byproducts remained the same or do you need to take into consideration price differences and volatility?
If you are not monitoring your spend and do not know where your exposure is – single-sourced vs multi-sourced, for example – then you could be exposed in certain categories with regards to price and supply.
If you have a granular view of your spend and are able to monitor it in real-time, then you know what is driving your purchase price variance (PPV): seasonal, buy quantities, geography, or rare events. You can leverage this insight across your business units, factories, and product lines to react proactively and take the necessary steps to smooth out your supply and costs to best meet your demand.
5. Rethink Your Relationship with Distributors
Big companies can view distributors negatively and think of them as just “unnecessary and added cost.” As companies spin up new categories and materials, they still need partners with expertise in these categories and materials. Distributors bring that expertise.
Can you identify your best distributors? Who has helped you during previous shortages or supply challenges? Who can you trust to help you source the materials you need from trustworthy suppliers? You need data to answer all these questions.
6. Procurement Resource Optimization
Not all of your spend categories are impacted equally. Category managers who are focused on sourcing rare and volatile materials will need to stay laser-focused on their category so that they can secure supply when things return to normal, and avoid shifting priorities.
Other categories, such as commodity electronic and mechanical components, don’t need to be worked as hard right now. Therefore, you can repurpose these category managers to focus on driving the new supply chain.
To sum it up, we hear from many prospects and customers that supply chain visibility, particularly in terms of insight into their data, is critical as they prepare for recovery. SMBs are especially adversely affected and don’t have the resources to work on data preparation and curation to drive key insights.
Learn more about how Tamr Supplier Mastering can help.