Five steps to building supply chain resilience
CIPS CEO David Noble recently commented that risk management is the biggest issue for procurement teams right now, and feeds directly into the success of supply chains. Your business is exposed at multiple points across your supply chain. Even highly integrated organisations can have thousands of suppliers; the range of transactions makes it difficult to track what is being supplied and when, limiting the ability to manage supplier risk. This means that poor visibility of risk areas and their potential impact can be a real threat – from reduced revenue, inflated costs and threatened production through to damaged credibility with both investors and stakeholders.
So how do you use risk management to strengthen these weaker areas within your supply chain? Creating a positive culture with your suppliers and ensuring you aren’t keeping them at arms’ length is vital. The easy steps below help you take a more flexible approach to building greater resilience into your supply chain, ensuring visibility and alignment of the value chain. It’s this that brings you closer to the shared end goal of supplying the customer.
1) Understand the risk
This is the vital starting point. Understand what risks each supplier brings to you. What are the risks, their significance and likelihood, and how you can offset them. Look at the benefits of supply chain diversification. For example, in biotech, we see the selection of suppliers who can manufacture materials you need at more than one site in order to reduce the impact of failure of a manufacturing line e.g. ThermoFisher manufacture the same materials in Grand Island in the USA, and Glasgow in Scotland.
Understanding the risk associated with each supplier means you can take proactive steps to safeguard against it. It’s about understanding the maturity of your suppliers and how capable they are of managing any threats, rather than a tick-box mentality that’s about getting something off your to-do list. You can then ensure they have processes in place to mitigate any risk themselves.
2) Be open from the outset
Set expectations from the outset and encourage dialogue where your suppliers feel they can be honest, with the confidence you are looking for a win-win outcome. This will build trust and confidence into the relationship on both sides. Having these conversations means you minimise the chances of surprises. Where risks are identified, ask your supplier to talk you through how they plan to respond to it, which could even involve factoring you into that management process.
Being open from the outset may require a fundamental shift from you in terms of how you manage your suppliers, and being prepared to have those early-stage discussions. A good time to have these conversations is at the outset of the relationship. Culturally, we see organisations taking a tough, uncompromising attitude to suppliers. This can create a defensive response from suppliers.
As the buyer, you have the opportunity to make that first move to create an environment which allows for those difficult discussions. Often, suppliers hold back from highlighting potential risk as they’re concerned they could lose out on the contract. Taking a joint approach to identifying and responding to risk will drive better outcomes as will agreeing responsibilities before things actually go wrong.
3) Take the long-term view
Take a proactive, long-term view to building your supply chain. A reactive focus on just-in-time procurement and managing cash flow increases the risk of business disruption. Organisations often fail to recognise that incentives to save money can introduce significant risk, focusing instead on the perceived short-term benefits.
Instead, ask suppliers to be transparent about risk in their bid submissions. In this way you can review possible threats and ensure that you aren’t in fact, over-paying for possible risks. From your perspective this means you might be able to lay out a better deal for both parties. You can also have the conversation around who’s best placed to manage the threats e.g. who has the specialist expertise.
4) Do the analysis
Investing time in supplier analysis can deliver real returns when it comes to creating that resilient supply chain. Yes, your supplier should be looking at their own risk analysis – this doesn’t mean they are.
Again, when you’re setting up your contract, understand how far the supplier is risk aware. You may have a handle on the risk involved in what you’re asking them to do for you. But do they really understand this in terms of what they need to do to deliver for your organisation? Have they recognised the new risk? How have they mapped the risks out and how does this correspond to your perceptions? Do they have the capability to handle them?
There is a real advantage too in understanding your suppliers’ supply chain as, like you, it’s the links further down the chain that could be the most at risk of breaking.
5) Evolve your approach through lessons learned
Inevitably, things will go wrong. However, it’s how you respond to hitches in your supply chain that will keep it evolving – and flowing. Capture any lessons learned on the risks that occurred and how you responded to them, to create that database of best practice. You can then apply these learnings to feed into your wider supply chain management strategy, driving chances of future success.
If risk is at the centre of your supply chain, then collaboration is the most effective way to safeguard against it. Understand where your Achilles heel is, map out a joint response, work in partnership and drive that resilience through mutual understanding and shared goals.
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NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”