23 Nov Is reshoring a knee jerk reaction to do something or a crafted strategy based on in-depth analysis?
Throughout the past few decades, manufacturing has expanded its global supply chain footprint in a race to improve profits. In the last twenty years alone, goods traded internationally have tripled to more than £8.2tn. In addition, the supply chains’ successes have enabled lean global networks that have improved inventory levels, delivery performance and lead-times.
However, the impact of Supply Chain Design (SCD) decisions has not been without its challenges and some of the impact has led to damage elsewhere. It has exacerbated the impact on climate change by expanding global wealth into previously under-developed nations, which has led to an increase in global competition for all nations. Furthermore, it is doubtful that any sourcing decisions over the past few decades have incorporated the impact to the environment, the rising costs of global logistics and quality failures. By supporting the continued push towards progress and global wealth, one of the key questions is have we also inadvertently disrupted our own competitiveness as a nation?
Global expansion has led to 5% of companies suffering from some form of supply chain failure at a cost of at least £82m.
The impact of Covid-19 has ripped the sticking plasters off to expose the weakness of SCD never previously assessed or understood. The shift in moving supply chain Business Continuity Management (BCM) has now risen from the confines of the dusty bottom drawers of filing cabinets, to the front and centre of every “war room”.
The need to build resilient supply chains is now top of the to do list.
However, simply reshoring to another company in the UK is not the answer, although it has been recognised as a short term tactical reaction to a crisis. As we move into the recovery phase of rebuilding and reconfiguring operations, supply chain BCM risk management must become a carefully considered and strategic action. This must be based on a deep understanding of supply chain risks, and how we can develop the insurance mechanisms to guard against guaranteed future events of a similar nature.
Be under no illusions. The supply chain crises we are facing now will happen again, and failure to create the detailed risk insurance policies through BCM could lead to the downfall of many global businesses – large and small, if it has not already done so!
Define and understand your risks
A detailed understanding of supply chain risks is vital to creating the baseline from which you can develop and implement measures for your supply chain resilience. But first a cross-functional team must be assembled, which should include a set of external eyes and ears to help challenge the status quo objectively. This is because you may only know what you know and may only look through the same lenses as you have done for years! But the team must be inquisitive and work on fact and not assumptions!
Assumption is the mother of all evil when assessing risk!
A series of matrices should be developed that help to identify supply chain frailties against business impact. And you need to be sure to assess everything that comes into your business. Focus is usually on raw materials and components, but now is the time to go right through everything. The washers, nuts, bolts, IT, tooling, work-holding – absolutely everything! Whatever it is that comes into your factory has been purchased from somewhere and is reliant on a supply chain.
Products and services should be assessed in terms of product complexity/uniqueness, volume of potential suppliers, lead times, switching times to new suppliers and inventory levels mapped against business impact, which assesses the financial damage to your operations. Your matrices should provide a visualised view of what products and services leave your business exposed to potential operational damage. A product which has a high impact on your operations and is complex with few potential sources of supply could be a disaster waiting to happen.
Suppliers should also be mapped similar to the outline above. Business impact should be assessed, with single sourced approved suppliers, their locations, and with their position in the tier of supply chains defined. You also need to map their financial resilience and any logistics considerations.
A single sourced supplier, delivering a unique product based offshore, with long switch lead times, low inventory levels and which is financially weak should be enough to trigger a seismic reaction within the business once the enormity of the impact to your organisation has sunk in.
Warning signs may also manifest themselves in clusters of suppliers for a product or services within the same region, especially in the event of a natural disaster.
As a word of warning, technology developments can also inadvertently create the worst-case scenarios above. Do not let engineering genius outweigh the commercial implications of poorly assessed and designed supply chains.
The key questions to be asked as you run through the development of your matrices should centre around the events that trigger the exposure as a result of the fragilities of your weak SCD. This can be broken down into four key areas:
1. Force-majeure (natural disasters)
2. Economic disasters
3. Malicious disasters (eg. Cyber attacks)
4. Third parties. (Fragile suppliers)
In other words, what would happen to that supplier and/or product/service if a Coronavirus created a natural disaster, which led to an economic disaster and that critical supplier you are reliant on ceased to exist?
Sound dramatic? Well, guess what just happened? We haven’t even mentioned those cyber criminals that are seeking to exposure the fragile state of every nation on our planet!
Go deep and see through the data
Do not look at your immediate suppliers and assess them. Go as deep as you can into the different levels of your supply chain tiers. Your well-known distributors are exactly what they say they are, but you need to understand the origin of where those products came from.
And even your local direct suppliers just down the road could have their manufacturing capabilities in far off lands. These days, who you think is a supplier is really a front of house sales operation for a large global organisation which has manufacturing sites all over the world.
The importance of forensically understanding your multi-tiered supply chains for everything in your business cannot be underestimated.
Collaborate with the supply chain
Collaboration with suppliers should always go way beyond developing new products and services. Collaboration means to also create value and support each other. And if done well, identifying and mitigating any risks will be a part of your collaborative formal business meetings with your suppliers.
So, discuss with your suppliers about developing a deep and mutual understanding of the tiers within the supply chain and the associated risks. A problem shared is a problem halved right?
But collaboration with suppliers is key when beginning to unravel the weaknesses in your SCD, as they can support you to mitigate those risk through great co-operation. At the end of the day, right now you need each other!
Insights to action, and action to deliverables
The matrices developed above serve as the principle foundations for prioritising your risk mitigation actions. But within those prioritised actions you need to develop a Plan for Every Part (P4EP).
This will help you apply one of, or all three, core mitigating actions you can take which will be appropriate for every part uniquely.
1. Stock – Build up enough stock through the supply chain so that in the event of disaster striking, you are able to switch supplier/products without disruption to your own operations.
a. Note: collaborative working on min/max stock levels and consignment stocking is key to minimising financial exposure and should form part of business reviews as demands signals change.
2. Sourcing – Dual/multi source products and services to either get away from those high-risk suppliers or know you can switch immediately to another approved supplier without impacting your own operations.
a. Our previous blog on how to source with appropriate due diligence ensures you source on quality, cost, performance, capability and financial stability, not just price.
3. Technology – If you are reliant on a unique product and there is no-one else in the world that could deliver it in the event of supplier failure, you should probably consider developing alternative technologies. Likewise, approving alternative technologies will reduce switching times in the event of supply chain failure.
a. This could form the part of a technology roadmap for your business which is geared to reconfiguring your SCD which provides the balance between technological evolution with commercial awareness.
Deliverables to operational agility and reconfigured supply chains
As ever, supply chain risk is a balance between those exposed weaknesses and the impact to your business. The strategy to building supply chain resilience is not based on short term reshoring, but on an in-depth review which prioritises your risk after making an assessment on mitigating actions and continuity based on three key indicators:
1. The likelihood of the risk becoming a reality, although right now a good bet is that you should always assume it will. At least you will never have a “Told you so” moment.
2. The financial impact to you in the event of that risk becoming a reality.
3. Your ability to mitigate the risk once it does happen.
Your insurance policy has now been developed and the process of implementing increased agility and reconfigured supply chains is underway, but it is essential that this forms part of continual operational reviews within your business that should always stay at the heart of your war rooms.
It has always been the case that your operations have only ever been as good as your supply chain. It’s just that now people understand it. And it’s what you do about it next which matters most.
Alliance Procurement Solutions has decades of expertise in supply chain risk management, saving our clients hundreds of thousands of pounds. Our solutions are tailored to suit your business, your budgets and your procurement strategies. Get in touch today for a free informal chat.
We hope you’ve found this information useful, if you have any questions or would like further help or advice, please contact us on 0330 311 2601 or [email protected] and visit our webpage here to see more about our Risk Mitigation Service Supplier Collaboration