Supply Excellence — Dynamic Supply Networks: What You Need to Know

Dynamic Supply Networks: What You Need to Know

July 11th, 2008 · by Tim Minahan · No Comments · LCCS and trade, On Demand/SaaS, best practices, sourcing, supplier management, supply management, supply risk

Earlier this week , we examined how the current global economic situation is causing companies to rethink their global sourcing strategies. And how their desire to on-shore supply is being frustrated by a lack of U.S. manufacturing capacity and skilled workers.

(Like Old Mother Hubbard, they returned to the cupboard, but now the cupboard is dry.)

This situation points to the dangers of over investing in any given supplier or supply region without an ample back up plan and an ability to quickly assembly an alternative supply network to avoid risks and capitalize on new opportunities.

Discover — You must be able to rapidly identify new and alternative sources of supply in existing and new regions. (And considering that industry benchmarks find that more than half of the sourcing cycle is tied up in searching for and identifying suppliers , it seems this remains a challenge for many firms. In fact, in a recent Supply and Demand Chain Executive study , spend management executives rated improving supplier discovery capabilities as one of their top five priorities.) Be sure to examine the true total cost of ownership — including landed costs — and risks associated with sourcing from a particular supplier or region, such as shipping or port issues, material input risks, or labor or political stability.
Qualify — Identifying potential suppliers is only the first step. You must take ample time to assess supplier’s capabilities, infrastructure, viability, and performance. On-site assessments can be costly, particularly in faraway markets. Consider looking to the growing number of outside providers that specialize in supplier site assessments in emerging markets like China, India, Vietnam, Lain America, and Eastern Europe. An Aberdeen Group study on global sourcing found that nearly half of companies plan to use third-party services for supplier identification and assessment .
Negotiate — It goes without saying that you must negotiate best-value agreements that not only take into account TCO and landed costs, but also include SLAs that allow you to share risk (and reward) with suppliers. As noted here, companies like Dow Chemical and Hewlett-Packard have used such risk-reward contracting to balance costs and risks for key commodities.
Enable — As economic pressures have made it more difficult to negotiate price concessions, I’ve heard from a growing number of sourcing managers asking for strategies to rapidly implement and drive compliance the contracts they already have in place. Supplier implementation requires you to have formal procedures for on boarding suppliers and enabling them to electronically catalog, transact, and collaborate with your stakeholders. New research from the Hackett Group shows that world-class procurement organizations have suppliers electronically enabled and conduct three-quarters of all supplier transactions and 65% of invoices and other collaborations (e.g., change orders, inventory and plan sharing, etc.) electronically . As a result, world-class firms have markedly more spend under management and lower procurement operating costs. Rapid enablement affords you the latitude to quickly engage alternative sources of supply to capitalize on changing market dynamics and minimize risks.
Manage — Considering the volatility in today’s global marketplace, you must have the visibility, metrics, and controls in place to continuously monitor and manage the performance of individual suppliers and the connected supply chain. This early-warning detection system helps to identify potential supply issues so you can either work to improve existing supplier capabilities or performance or develop alternative sources of supply. In fact, an Aberdeen Group benchmark found that companies with formal, systematic supplier performance management programs report at least 20% improvements in supply costs, quality, and reduced risks — e.g., stockouts, leadtimes, etc. (Download this report for more information on the foundational principles of supplier performance management.)

Rinse. And Repeat.

Today’s increasingly global and volatile business environment is straining the cost and stability of supply chains. Winning companies will be those that can quickly adapt and adjust their supply networks to continuously optimize costs, performance, and risks. The above capabilities will become increasingly important for ensuring that your supply network is dynamic enough to maintain this balance and sustain a competitive edge.

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