Six Methods for Addressing Supply Chain Vulnerability

Can you recall the global supply chain ever receiving more attention and scrutiny than in the past few weeks? The global pandemic will continue to wreak havoc on “business-as-usual” for virtually every manufacturer: particularly in regards to how the world produces, manufactures, and distributes goods.

Sure, there are bright spots amid the doom and gloom. Hundreds of companies around the world have pivoted to produce products that use the same raw materials they source but for entirely different (and beneficial) purposes. Ford, Apple, Dyson, LVMH, this list is admirably long and continues to grow by the day.

Yet, mostly this crisis has shown us all how fragile the global supply chain actually is.

In an effort to be ever 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) – from which antibiotics and painkillers are made. Despite the risk, global supply chains have functioned remarkably well for over two decades and so almost every company is caught off-guard in the current pandemic. If they don’t fully understand their supply chains; including where key raw materials come from, then they cannot accurately project just how bad of a situation is in store for them.

In response to this current shock – and to inoculate their businesses from future shocks – supply chain leaders, collaborating with their procurement specialists, need to start implementing strategies and take direct action to mitigate risk and prepare themselves for the new normal.  As we move towards “reopening” the country, CEOs will reassess their balance sheets one can expect three areas of focus:

  1. Cost reductions driven by “zero-based budgeting”
  2. Understanding the overall risk exposure of the company to the pandemic and effect on supply chains
  3. Key factors that would disrupt business continuity

Below are six proactive actions supply chain leaders can take to address the above problem areas both in the immediate as well as the long term to refortify 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 for where you have exposure for parts shortage as well as maybe excess inventory. Do you have a clean, master parts list without duplicates? How 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 and 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.

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? How about your distributors?

COVID-19 is a moving target with respect to daily changing hot spots. Overlaying your supply chain on a pandemic heat map is critical to assess where your exposure is in terms of not just your suppliers’ factories but also where distribution could be affected. Enriching this 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, can ensure you don’t have to. 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 supply chain movement is affected, then the effect will show in your bills of material cost. Do you know where you are getting your best price and how often are you leveraging it? For instance, oil is now historically cheap. Has the cost of your oil-based byproducts remained the same or are you taking advantage of lower prices to reduce spend?

If you are not monitoring your spend, and 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 PPV – seasonal, buy quantities, geography or rare events. You can leverage this across your business units, factories and product lines to react proactively and take the necessary steps to smooth out your supply and your costs to best meet your demand.

5. Rethink Your Relationship with Distributors

Distributors can be viewed negatively by big companies and thought of 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.

Can you identify who are 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 more rare and volatile materials will need to stay laser-focused on their category so that supply is secured when things return to normal, and can’t shift priorities

Other categories – such as commodity electronic and mechanical components – don’t need to be worked as hard right now. These category managers can be repurposed to focus on driving the new supply chain

Conclusion: 

The COVID-19 pandemic is not just a health crisis but an economic crisis. We hear from many prospects and customers that supply chain visibility (particularly in terms of insight into your 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.

To help, we have developed highly prescriptive ‘Data Can Help’ Tamr packages for Spend Analysis and Supply Chain Risk Exposure to help companies kick start their recovery journey.  These packages leverage Tamr’s award-winning machine learning platform and are designed to start uncovering blind spots in your supply chain and spend within two weeks, so you can focus on areas where you are most exposed.