Monday, 1 April 2013

Meeting the Supply Chain Complexity Challenge - Part Two

Lee Glendon CBCI
Head of Research and Advocacy
Having identified some of the drivers of complexity in supply chains in the first part of the roundtable report, how are organisations dealing with the challenge?
In dealing with the challenge of multiple tiers in the supply chain, there was common agreement on the need to gain better visibility but divergence of approach in practice.  Some organisations were looking at better methods to manage tier two supplier relationships, while others recommended that the best approach was to work with tier one suppliers and get them to work with their suppliers in turn.  In the case of one large retail organisation, they worked through their supply chains to the source applying a consistent code of expectation in terms of product quality and integrity throughout.  It was recognised that this was a very resource intensive process. However, it was an embedded practice, so for them it was not a case of having to justify the investment each time; an enviable position in the eyes of most of the roundtable participants.
The discussion moved on to the challenge of managing 10’s of thousands of suppliers and there was consensus on the need to focus efforts on key suppliers and key supply chains.  It was recommended that filters are applied to provide focus – these filters should be based around criticality in the sense of ‘would failure of this supply chain quickly stop my organisation from being able to carry out its key activities, and how quickly could they be replaced’ and secondly around risks or threats that might cause disruption, such as the supplier’s financial profile, the health of the industry in which they operate, their locations and consequent exposure to risks as diverse as flooding, earthquakes and geo-political instability.   These filters help generate a ‘shorter-list’ to scrutinise.  Another approach favoured by many at the roundtable was to use procurement ‘category management’ to breakdown suppliers into common supply groups and then perform risk profiling on this basis.
For those suppliers identified as key to the organisation, the favoured approach was to seek to build closer relationships at executive and operational levels with the objective of improving communication and co-operation and thereby reduce the number of ‘surprises’.  For one organisation, this took the form of running workshops on business continuity and running joint exercises.  Toolkits were provided free of charge and their business continuity plans were shared to help get alignment.  They would also recommend that supplier staff joined institutes such as the BCI to develop capability and drive programme improvement.  Interestingly, one of the unintended consequences of this deepening of the relationship, is the difficulty of exiting such relationship, as it would mean investing a considerable amount of time bringing on board a new supplier to get to the same level of understanding.
Some organisations were concerned about being overly onerous on their supply network, especially those operating in sectors where there are a limited number of suppliers.  One person noted that they had experienced suppliers not wanting to do business because the compliance requirements did not make it worthwhile.  In such cases, purchasing organisations are co-operating to reduce the burden on their suppliers through articulating common requirements.  
Following a good discussion on approaches to deal with the consequences of increasing supply chain complexity, the ‘wish list’ of participants included the need to gain a better understanding of ‘what supports the supply chain’ and mapping out supply chain networks.  Others were looking for a more dynamic set of indicators that would flag signs of difficulty and an impending risk event in the supply chain.  Another felt that there was a need to consider ‘profit impact’ rather than spend in identifying key supply chains.  While one delegate felt there was a need for procurement to drive risk conversations with suppliers and ensure due diligence had happened.  In this last respect CIPS is planning to develop a number of educational and training resources to support development of its members to meet the challenge.
The final thought from the discussion should go to the ‘what’s the return on investment’ question when it comes to investing in supply chain resilience.   For one major organisation top management evaluates the value of investment in resilience in terms of how well it prevented a problem and how well the organisation come out of it.   Quite simple really. 

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