As companies scramble amid the COVID-19 sourcing crisis, crucial information is often unavailable or siloed within global teams. This results in a reactive and uncoordinated response, exposing companies to excessive impact and underscoring the need for critical perspectives that cut through confusion and increase supply chain security.
At Pivot International, as qualified Essential and Critical suppliers with nearly 50 years of helping companies successfully surmount disruption, we’ve long understood the necessity of advanced supply chain solutions, strategies, and technologies for mitigating and managing risk. With product development expertise that spans twelve industries and 200,000 square feet of manufacturing capability across three continents, we’re delivering both short- and long-term solutions to the current sourcing crisis.
Why is it that so many companies struggle to map their supply chains and adequately prepare for disruption, despite the consensus that this is essential? Here, we’ll take a look at barriers and offer critical perspectives for breaking through them.
Barriers to Supply Chain Mapping
There are two primary barriers to mapping the supply chain. First, mapping the supply chain can be expensive. As much as company leadership tends to be quick to acknowledge the need for supply chain mapping as a risk-mitigation strategy, this task is frequently back-burned due to the significant time and labor investment it involves.
The second barrier is that many companies rely on the personal reports of their top- and secondary-tier suppliers, trusting as valid what are often inaccurate reports or mere guesswork passed off as fact. Moreover, even when information is accurate, it is rarely adequately documented, and when procurement personnel change jobs, are promoted or retire, this information often becomes unavailable. Without proper documentation, the recovery of this information can take years.
Critical Perspective #1: The cost-savings of mapping your supply chain exceeds the expense required for doing so.
Though supply chain mapping can be resource-intensive and difficult, recent disruptions drive home the reality that it’s not only a key competitive advantage in the best of times but a matter of survival in the worst. Fortunately, the value of this map is far greater than the cost and time it takes to develop it.
The most common approach to supply chain mapping relies on a bill of materials and focuses on key components. Typically, it starts with an identification of the company’s top five revenue-driving products. From here, the suppliers of the components for these products are identified. Last, the suppliers of the raw materials for these components are identified. The goal is to drill down into as many tiers as possible, as there may be critical suppliers that are otherwise hidden from view. Additionally, the map should include information on:
- The activities a primary site performs
- Alternate sites with identical or similar capability to which a supplier may have access
- The time required for the supplier to begin shipping from an alternate location
Critical Perspective #2: When procurement focuses only on short-term cost savings, revenue-loss is only one disruption away.
When procurement is forced to resort to extreme measures for timely supply (for example, buying materials at a surcharge), the higher costs are assigned to other parts of the business (like the logistics function, for instance, in the case of expedited shipments). Too infrequently is the question sufficiently examined of how procurement’s commitment to securing the lowest price possible may expose the business to unnecessary risk.
Procurement, logistics, and supply chain financing divisions must work together to close key gaps (information, tools, processes, etc.) to protect the organization from disruption and expense that is unwittingly generated “upstream” through an indiscriminate pursuit of cost-savings.
Critical Perspective #3: Supplier performance metrics that fail to include disruption-assessments are misleading and potentially dangerous.
Because buyers and suppliers alike suffer when disasters strike, it makes sense that firms should incorporate disruption-related metrics in their assessments of suppliers.
When establishing a relationship and negotiating a contract with a new supplier, for example, many companies include language that requires suppliers to participate in annual supply chain mapping efforts. When force majeure events like the COVID-19 health crisis occur, those supply chain maps can be used as guidance for solutions. Additionally, contracts should outline expected recovery strategies and timeframes.
Pivot brings advanced risk management strategies and supply chain solutions (including digitization, ERP, and MRP systems), to help companies successfully weather disruption. With company-owned facilities, we’ve achieved exceptional levels of supply chain transparency and security that allow us to effectively support our partners’ short- and longer-term business objectives. Contact us today to learn more about how we can help your business survive and thrive in a climate of unprecedented challenge.