Two years ago, I wrote about what I had learned from supply chain executives trying to manage business continuity in the early days of the pandemic. In the last few weeks, I've had the opportunity to speak, once again, with several supply chain leaders. During our conversations, they've shared what they have learned and which strategies they are adopting to ensure success in the new post-pandemic reality. Here, I summarize our key takeaways.
The Top 5 Supply Chain Pain Points
Companies are seeing massive component shortages. They have been in an ongoing firefighting mode with new shortages occurring every few days; Covid, the Russia-Ukraine crisis, and the recent earthquake in Japan are just a few top-of-mind examples. Now, instead of the MRP process being delivered from planning professionals to sourcing professionals, the planning team needs to find out from the sourcing team which materials they can get before they can plan accordingly. Against this crisis backdrop, executives have acknowledged that the relationship between supply chain and sourcing requires significant improvement across the boards.
2. Timely Visibility of Disruptions & Impacts
In many cases, shortages are found only after the MRP is run. Multiple interviewees indicated that when shortages hit, sourcing teams cannot easily identify impacts, discover alternatives, identify suppliers, and start sourcing processes. The pain point is not just finding alternatives but also being able to perform simulations of alternate allocation scenarios to see the impact on the integrated business plan. Some lead times have shot up very quickly, leaving companies unprepared. Increasing lead times impact routine supply continuity for sustaining products and can also delay new product launches.
3. Collaboration with Contract Manufacturers & Suppliers
You can outsource the supply chain but not supply chain management. Many companies have most of their products built in an outsourcing model—all with largely manual processes. Collaboration with contract manufacturers remains a broad pain point across many processes. There is minimal visibility and control over how the contract manufacturers manage their sourcing strategies—even for components that companies manage on their own.
4. Brittle Supply Chains
Pre-pandemic, many companies maintained large fractions of their components as sole sourced because the costs of qualifying and tooling second sources were considered prohibitive. However, the pandemic has taught us that the cost of not doing so is far higher.
5. Paper Processes & Islands of Information
It is said that when the water level drops in a creek, you expose the rocks. This is what happened during global lockdowns in the two years of Covid. Companies realized that any processes that still relied on paper broke down—in this case, you need a person in the office to move the paper. Companies that are household names and perceived to be the flag-bearers of the technology revolution realized they had paper steps left in mission-critical business processes and scrambled to digitize. Others that do have digital processes in place still struggle with analytics. The problem is not the lack of information but the speed of analysis because of heterogeneous and isolated systems that hold pieces of information that are neither harmonized nor integrated.
The Top 5 Strategies
1. Integrated Continuity Planning
Several executives stated that shortages are forcing supply chain, product, engineering, and sourcing teams to work together to resolve shortages by doing design changes to qualify substitute components and get them sourced rapidly.
2. Outside-In Intelligence
The last three years have made manifest the interdependencies of global value chains. Companies are launching initiatives to extend visibility into their suppliers and their sub-tier suppliers—and in some cases—all the way to raw materials.
3. Diversification of Sources
Some executives have acknowledged a clear shift away from specialized single-sourced components to diversifying sourcing. Now, they have OKRs in place to drive dual sourcing. To our knowledge, almost all companies we spoke to have similar initiatives in place.
4. Digital Networks
Many of us have pointed out for years that supply chains are not chains but networks of partners interacting to deliver products and services to the end consumers. Network problems require network solutions. Companies are now investing in joining cloud-based SaaS networks that connect them to their contract manufacturers and suppliers. Networks bring shared visibility and lock-step orchestration in times of high volatility. When combined with proper business processes, networks can cut out information latency and increase collaboration.
Louis Pasteur once said, "Chance favors only the prepared mind." Forward-thinking companies are also investing to be better prepared for once we come out of the current flurry of shortages. Companies are realizing that even though cost considerations are being overlooked in a scramble to secure supplies, this is not sustainable. Sourcing teams will need to balance cost and risk going forward. These companies are now setting up new functions for cost analysis, tear down analysis, and risk assessment. In addition, many companies had already set up cross-functional resiliency councils.
Some things never change. Panic is bringing back the bullwhip with a vengeance. Some executives acknowledged that they see the bullwhip even inside their company. The product business units hedge their forecasts to try to get more share in the allocations. Then the sourcing teams add their own padding. Speculating that this is already happening, the suppliers and manufacturers judge their customers' forecasts down on their own and decide how much supply to allocate to them.
Things may get worse before they get better. However, companies that are better prepared, have diversified their sources, and have built outside-in digital processes where they can collaborate across supply chain, sourcing, product, and engineering functions, as well as between buyers, contract manufacturers, and sellers will be the ones that not only survive but thrive in this new reality.
- The Power of Data AggregationAre you paying more than your competitors or peers for the same component? If so, which negotiation strategies—or alternative sourcing decisions—might reduce the gap? Does […]
- The Role of Data in Sourcing SuccessIt's difficult to source and buy direct materials at scale. While simple transacting may seem easy enough to understand, the process leading up to these […]
- Protecting BOM Health & NPI With Portfolio MonitoringOrganizations are experiencing an increase in unplanned product redesigns, leading to missed product launches and missed shipments of sustaining products. Product redesigns are driven by […]
- Lessons for Navigating a Post-Pandemic Supply ChainTwo years ago, I wrote about what I had learned from supply chain executives trying to manage business continuity in the early days of the pandemic. In […]