Soup up your supply chain

Supply disruption can lead to a seven percent reduction in share prices (on average) according to a recent Accenture study. Supply disruptions are likely to have a long-lasting impact on customer satisfaction and loyalty. Unfortunately, risks that pose danger to the smooth running of the supply chain come in many forms and include natural disaster, IT malfunction and suppliers going out of business. In an attempt to mitigate these risks, companies throw considerable resources into plans and systems that aim to predict the future. When disruptions do happen though, even the most thought through plans can become obsolete.

Most supply disruptions are in fact caused by every-day problems such as late deliveries, suppliers failing to meet production and quality targets, or a shortage of components. Growing volumes of globally sourced components and services result in complex end-to-end manufacturing processes. Along with that complexity comes an increased likelihood of suffering a break in the supply chain. It might seem unrealistic to expect manufacturers to have an in-depth understanding of their supply network’s operations that is even remotely equivalent to what’s visible within their own four walls. However, when considering that every added link in the chain brings with it added risk, the expectation becomes essential.

Frictionless supply delivery – without compromising quality – is the prime objective, but over-stocking and buffer inventory isn’t a viable solution. Quite simply, companies can’t afford it – storage is expensive and demand for goods changes too quickly. Manufacturers holding buffer stock often end up with an inventory full of unwanted goods. Instead, to ward off a break in the chain when problems occur, companies need to focus on being proactive instead of reactive. This means finding ways to be agile, transparent and collaborative when working with trading partners and service providers.

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Right now, companies tend to dabble in collaboration. Some have planning collaboration or order management solutions. Occasionally, companies have limited production visibility at the supplier or outsourced manufacturer’s site. But most companies fail to look at the full picture to assure supply goes undisrupted. Instead, multiple departments deal with different aspects of the supplier. Procurement negotiates the price, manufacturing material handlers place the order, logistics determines how to ship, supply chain tracks the shipment and finance determines when to pay. This fragmented approach to supplier management leads to excessive strains on suppliers and haphazard reliability of supply. The status of each process is tracked separately and there is no way to look at the big picture, contextually. A holistic alignment with suppliers is needed across the corporation to ensure a seamless flow of high-quality goods to the right place at the right time.

Here are seven groups of questions manufacturers can ask themselves to assess their assurance of supply score:

1. How early and often are you collaborating with suppliers? Are you sharing forecasts? 
2. How are you placing and managing your POs? Do you change quantities and deliveries after you have given your supplier a firm PO? 
3. Do you have true visibility into key events in the production lifecycle, into WIP (work in progress)? 
4. Do you have accurate information regarding vendor managed inventory, n-tier supplied component parts or even parts supplied as subcontract material? 
5. Do you have granular visibility into shipments to know exactly what is packed where and the exact date it will arrive? What about exact location as the shipment crosses borders or switches transportation modes? 
6. How are you handling invoices and settlements? Is handling supplier email and phone calls still part of the common workflow? 
7. Do your suppliers have access to capital? At what rates are they borrowing? Are they leveraging your credit strength to eliminate capital costs? Are you aware of your suppliers’ financial health?

Few people wear a big enough hat to address all of these questions. The key is breaking down barriers between departments and getting the finance, procurement and supply chain teams to see the big picture as it evolves every day. Avoiding disaster is just one problem. Eliminating the obstacles to an efficient and lean supply flow should be the objective.

How do manufacturers know they are at risk of having a supply assurance issue? Symptoms to look for when assessing assurance of supply problems:

• Too much or too little inventory
• Buffered lead times 
• Have a supplier risk program 
• Losing customers 
• Pushing inventory responsibility to contract manufacturers or suppliers – not managing how warehouse is stocked 
• New product introduction availability fears – questions surround how you will get supply
• Rigid supply – no flexibility for demand surges 
• Have an offshoring payment processing facility 

Everyone has an assurance of supply problem to some extent today due to the complexity of global sourcing. For years manufacturers were blessed with high margins but that is changing and margins are thin today. You can’t fill up your distribution centers with goods—not only is there a cost factor but the speed of business and consumer buying trends cause goods to quickly turn obsolete. Manufacturers have to be faster and more agile in the supply chain. Assurance of supply is essential to being able to compete. It also helps to be easier to do business with from the supplier’s perspective. The common thread in assurance of supply initiatives is partnering with suppliers by collaborating. Best in class companies seamlessly manage all aspects of a supplier relationship, while approaching the entire network of trading partners as an extension of the business.  

Snapshot
A high tech manufacturer was being hit by a string of supplier attrition. They wanted to find out the root cause so they brought in an outside firm to investigate. Here’s what one representative supplier said: “Every day we get beat down on pricing by procurement, yet our manufacturing windows are not respected. Forecasts are inaccurate and the company is constantly changing orders inside the firm order time period. We had to hire a fulltime person to handle all the order dispatching calls. There is a four-hour call every day to review every single order. On top of all of this, we never get paid on time and don’t know the status of our invoices. Recently the finance team informed us that they are pushing out days payable to 90 days.”

The manufacturer lost suppliers and put its supply at risk because it was not investing in the supplier relationship. It wasn’t looking at the big picture in the assurance of supply. 

The company provides a cloud-based collaboration platform that leaders in nearly every sector rely on to automate hundreds of supply chain processes on a global scale, across entire trade communities. Diane’s area of interest is creating supply chain technology solutions for global manufacturers.