16 Nov Managing supply chain risk
The current pandemic has a lot to answer for in terms of supply chain disruption. Now, pretty much all of us are aware of the impact of supply chain issues and delays.
Demand for PPE, bicycles, home gym equipment, sanitiser, toilet roll, flour, antibacterial cleaning wipes, and many more coronavirus essentials, skyrocketed in late March, leaving people and businesses struggling to obtain certain supplies. Although things did calm down over the summer with supplies hitting the shelves again, the whole episode brought supply chains and managing the risk into sharp focus.
What it highlighted is that at best, components and items are delayed for an unspecified period of time. At worst, items are unavailable across the board and there’s no knowing if or when they will become available again.
Supply chains worldwide were among the first areas to be affected by the pandemic when it first struck several months ago, and there’s been plenty of discussion ever since about what things will look like and how processes and systems need to change post-pandemic.
One example that’s really stood out to us, is the case of an inserts supplier used by the injection moulding industry, as well as many other sectors.
The regulations associated with producing medical-grade products, and the procedures required for approvals, means any changes need to be re-certificated, which can be a long and costly process:
• For all new orders where the original inserts were no longer available from the supplier – a new supplier will need to be sourced. This could have cost implications and there may be limited credit available, which could impact cash flow
• Once a new supplier had been found – sample inserts will need to be sent for trial and verification. Purchase orders will need to be raised by the customer for a sample run using the new inserts, which is then chargeable to the customer
• Once sample parts have been run and supplied – the verification stage begins, which could result in one of two outcomes, either approval, or rejection. If approved, then the original purchase would be completed, with the only issues being a delay in the lead time of the original order, the additional cost of the samples, and any additional cost incurred in the part price of the inserts. If rejected, then the process starts all over again to find a different supplier, re-making samples until verification is approved
The impact of just one supplier going out of business can cause significant order delays and generate additional costs for samples and verification. The cost of having to draw up hundreds of drawings alone to maintain full traceability through the manufacturing process doesn’t even bear thinking about.
Unfortunately, this case study isn’t an isolated example of the supply chain disruption that’s currently taking place. It’s a stark reminder of the implications of a relatively low risk supplier going out of business and the knock-on effect it can have on the wider supply chain in terms of cash flow, quality and costs.
Tips for managing supply chain risk
Here are some practical tips on what to do should you ever find yourself in a similar situation as the inserts supplier:
1) Map all of your suppliers on a risk matrix – This will help you assess business impact against supplier scarcity/sole approved. Those that are deemed as high risk; either because they offer a niche or bespoke service, or because they are in a small market, will need some contingency planning. Consider how you will source these parts if there is an issue with the supplier. You may need more than one supplier working together in replacement.
2) Map all of your product/service types on a risk matrix (ie. tooling, raw material/washers etc.) – This will help to map business impact against unique processes/products.
3) Prioritise risks – Use a matrix to assess business impact vs ease of implementation.
4) Develop risk mitigation strategies using three core options (stock, dual-source, technology) – eg. Allow enough stock to balance against switching time, dual-sources enables quicker switching times in the event of supplier failure, and alternative technologies could remove the reliance on unique processes.
5) Implement your strategy by creating a detailed Plan for Every Part (P4EP) – Each part or service will have its own unique considerations, and therefore detailed planning is essential to ensure future success.
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]