Increasingly complex supply chains are requiring more and more visibility and transparency to help prevent delays due to geopolitical instability, labor challenges, weather events, and transportation disruptions. And then there is the looming potential for trade policy change in the uncertain political environment. Permanently addressing these issues and achieving a more resilient and robust supply chain requires a planned, strategic approach, following these six steps.
1. Assess your organization’s entire, current supply chain.
Start with a SWOT analysis. What strengths can you leverage? What obstacles have stood in the way of strong performance? Does your organization need to diversify due to too-heavy- reliance on particular suppliers? Are there other opportunities for improvement? Identify key issues or attributes that disrupted your supply chain in recent years and develop a clear understanding of the gaps.
2. Identify criteria for measuring current and future supply chain performance.
Include clear measures for quality, delivery, lead times, transparency, responsiveness, and costs. For each current and future supplier, define measures for evaluating financial stability, regulatory compliance, and reputation. Criteria should also include characteristics and measurements for a future, stronger supply chain.
3. As part of your assessment, evaluate current suppliers.
a. Identify all key suppliers and determine the level of dependency on each. Determine the risk associated with each supplier, such as potential for disruption through transportation delays, labor disputes, weather disruptions, financial stability, and geopolitical risks.
b. Review supplier performance against agreed-upon Key Performance Indicators (KPIs) related to quality, delivery times, compliance with regulations, cost, as well as reliability and consistency. Does the supplier have technology to allow for re-time visibility and coordination across the supply chain?
4. Leverage existing relationships to help close the performance gaps in your company’s supply chain.
a. Existing suppliers are more likely to have a better understanding of your needs and be more willing to customize solutions. If a long-term relationship with the supplier has been strengthened and improved over time, there is likely to be more opportunity to negotiate on key aspects of service or product. In times of instability, a long relationship may work to your advantage because the supplier may prioritize your organization over others, allowing greater flexibility with timing and amounts of orders during business uncertainty.
b. Long-term existing relationships are more likely to lead to strategic partnerships, where suppliers become an integral part of your business strategy, sharing in both risks and rewards, as well as opportunities to grow both organizations. In one client chemical manufacturing organization, a customer-supplier relationship encouraged the development of a joint go-to-market strategy and resulted in additional business for both organizations.
c. Loyalty can go a long way toward allowing your organization to press for early access to new products, technologies, or innovations from suppliers. A supplier may allow you to test new products and services or pilot Beta technologies at a reduced rate, saving your company millions.
5. Evaluate potential new suppliers.
a. In conducting a supply chain assessment, did you determine the need for additional suppliers, perhaps of different size or in different geographies? Smaller and/or more local suppliers may be more responsive and agile while global suppliers may allow for stronger cost and efficiency advantages. Every potential supplier must meet the criteria generated in Step One, above. Leverage networking events, online research, and allies in your network to identify possible suppliers. Many companies utilize outside industry consultants to help them identify, vet, and negotiate suppliers. Look for suppliers that can provide additional capabilities that current providers do not possess.
b. Although there can be temporary, added administrative costs in bringing new suppliers aboard, there can also be benefits beyond supply chain diversity. Sometimes new suppliers are very invested in proving their capabilities. For example, one client organization had a pre-exising supplier that had become complacent. The supplier’s competitor took advantage of the situation by negotiating with my client to provide Beta supply chain services at a much-reduced cost, making the risk of changing suppliers more palatable. The difference between the new and old performance was almost unbelievable in terms of quality, delivery, cost and regulatory compliance.
c. Determine all possible risks associated with the prospect supplier.
d. For new suppliers, start small to test reliability on KPIs.
6. Measure, measure, measure.
For both new and existing suppliers, thoroughly negotiate and agree to the KPIs you defined in Step One, above, including methodology, frequency, and transparency of measurement.
By following these six practices on an ongoing basis, your business can have a more robust and responsive supply chain and improve your organization’s operational performance. To schedule a complimentary 60-minute session on developing a resilient strategy, please email me or message me in LinkedIn.