By Tim Harden
In 2011 the world saw how a 9.0 earthquake and tsunami devastated local production and power generation in Japan, causing massive supply chain disruptions for companies all around the world. There are lessons from that enormous natural disaster that we can use to mitigate the disruptions from today’s COVID-19 pandemic. The current global pandemic is likely the “black swan event” that forces companies worldwide to transform their global supply chain model.
Here are some tips for how you can better prepare your own supply chain to survive future crises.
Meet with Your Suppliers Regularly to Continually Manage Supply Chain Risk
Sit down with your suppliers on a monthly or quarterly basis to analyze every strategic component of your supply chain. Go through the same process with your sub-suppliers; dive down into every single strategic component and understand what their strategies are for diversifying, should a disruption occur. During this process, you’ll most likely uncover a number of holes in your supply chain. On a monthly (or quarterly) basis, have your suppliers and sub-suppliers report on how they could shift manufacturing, assembly, or delivery paths if they were confronted with these high-impact, low probability “black swan” events. Undoubtedly, this requires a lot of work on the suppliers’ part, but ultimately, this type of planning will benefit those suppliers as well.
The key to this kind of planning is to continually work on this process. You can’t meet with the suppliers once and say, “OK, now we have a plan in place.” That plan might be good for a quarter, or if you’re lucky, two quarters. Suppliers will then drift back into their natural flows and use the easiest or cheapest path, with very little diversity in their supply chain. Diversity must stay in the delivery, assembly, and subassembly paths so that you continue to have a very strong overall delivery capability within your supply chain. Interestingly, I stay in contact with a lot of people that I used to work with on this strategy, and even today, those same suppliers have that program in place to continually check to make sure that they have diversity in their supply chains.
Manage the Long Tail of Your Supply Chain
A key part of any successful supply chain begins and ends with complete visibility of all your components and supplies, particularly your strategic ones. Typically (although it varies slightly by industry), 80% of your cost comes from 20% of your suppliers. If you flip that, you can see that there’s a long tail associated with every supply chain. In my case at AT&T, my long tail was about $8B worth of spend; that’s a long and expensive tail. I met with the top 20% on a regular basis and we did a lot of work on diversity. When you start talking about 58,000 suppliers in an $8B long tail, that becomes very difficult to manage unless you have a capability built into your supply line that gives you more visibility farther down that tail.
The solution is to find a supply chain visibility platform that can give you that ability to see farther down that tail in an economic way. The economics of, “How do you keep visibility of that?” is one of the key factors of a successful supply chain. The other critical piece to consider is if the technology is advanced enough to be able to actually give you complete visibility. Think about it this way: it’s easy to control inventory in a large warehouse, but once it leaves the warehouse and goes on the truck, you can lose visibility into what’s going off of or what’s going on to those trucks. You have to come up with a way in which it’s easy for you to inventory the trucks in the same matter that you inventory in the warehouse. In our case, in the telecommunication industry, we have “turf vendors” who are service suppliers that build the wireless towers, install the electronics, and perform the testing. The turf vendor would get the inventory to complete that job, and they would put that inventory in their own sub-warehouse, because they may not be ready to do the job at that particular point. In this case, it’s critical to have visibility when it leaves the warehouse and when it gets to a cross-dock. If you don’t have 100% visibility into your supply chain, you would lose visibility when it leaves the cross-dock and goes to the turf vendor; you would only gain visibility a year later when they close out the job and list every single component that they used in their installations. If you had full visibility into this process, you would be able to move parts around to other locations that need it, thereby avoiding the need to order more parts.
Today, you have some flexibility, but not as much as you would want unless you have a supply chain visibility platform to help you with that. If you had more flexibility, you could save hundreds of millions of dollars, because you wouldn’t need to order as much inventory. With the larger components, you’re shortening up that capital-in-progress capability. Obviously, there are huge opportunities across many supply chains for a platform that gives them much more visibility and flexibility than today.
Converting Your Major Infrastructure to a Supply Chain Visibility Solution
When looking at supply chain visibility solutions, look for one that is easy to use and can fold into your environment relatively quickly. You’ll need to calculate the cost of conversion, both in time and in terms of the true cost, including the knowledge base cost associated with that. Start a trial with a visibility platform to see how flexible the capabilities are. Then, choose one or two environments where you can introduce/test your visibility platform. Look for a platform that has a low disruption and low education factor (i.e., easy to use).
In terms of putting a team together to implement a visibility solution, you’ll need people from warehouse management, operations, and components/subcomponents management. Get their input as to what they would want in an ideal supply chain solution.
Remember that the supply chain moves at the speed of your company, not necessarily the speed of your industry. In many companies, conversion to digital and software-driven technology has been much faster than in other companies. However, many organizations are waking up to the fact that they’re behind and they need to convert, but they’re sitting on years of investment that is now paid for. They’re starting to look at cloud-based capabilities. This is driven by the fact that the business models that many companies have in place are not flexible enough for them to survive these types of disruptions, and, therefore, they need something that’s a lot more flexible; cloud environments provide that. When looking at cloud environments, make sure that the cloud-based solution is surrounded with a top-notch security capability to protect your valuable assets.
It’s critical that you develop key metrics that can indicate improvements in visibility. There are many different metrics that you can develop to help you chart the success of supply chain visibility platforms. One such metric is capital-in-progress. How much capital do you have tied up, waiting on projects to be completed? That’s a key metric to watch because it affects cash, overall capital, and burn rates. Other metrics to track include measuring improved lead times and performance, as well as the ability to identify shortage and quality problems along the supply chain. Remember that having high visibility into your supply chain results in high efficiency, which is going to have a dramatic and positive effect on your bottom line.
Reach out to Cloudleaf to learn more about how you can transform your supply chain into a data-driven strategic asset.
About the Author
Tim Harden has strong expertise in all major supply chain functions, including strategic sourcing, purchasing, supplier diversity, supply chain logistics, distribution, and fleet management, stemming from his leadership roles at Pacific Bell, SBC, and AT&T. He is a member of Cloudleaf’s Board of Advisors, and is the Chairman Emeritus of the QuEST Forum Executive Board, which manages the worldwide quality standard TL 9000. He was also a former member of Supply Chain 50, which represents a group of the top 50 Fortune 500 Supply Chain professionals from around the world.