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Like many, the Corona crisis in spring 2020 and the acts of war on the European continent hit us largely unexpectedly. Despite all the human dismay about the following events, we were also concerned with the effects from a professional point of view. Shutdowns and sudden supply bottlenecks in the manufacturing industry slowly made people aware that a huge storm was brewing, with the supply chain management at its center.
The Corona crisis can be classified as the beginning of the disruption of supply chain management, as it clearly showed the vulnerability of even well established supply chains. Initially the manufacturing industry assumed a short-term nature of this crisis but was hit by the massiveness and durability of this disruption. The chip shortage with long lead times and almost explosive cost increases for electronic components is just one manifestation of this crisis that has particular public attention. However, all supplier markets are affected, right down to the raw material level.
What strategies and tactics can be applied to increase the supply chain resilience?
Multisourcing Strategy: This essentially means the increase to at least two suppliers per component, often also referred to as "dual sourcing". This increases flexibility due to the situation-related shifting of contract volumes from one supplier to another. If one of the two sources of supply has quality, delivery or supply problems, the risk of a bottleneck can be reduced. This is a common method, especially in the electronics manufacturing industry, to limit delivery risks, e.g. for standard electronics components. However, this strategy requires stringency in the product development process as well as a certain level of market intelligence when defining multisourcing-capable components. In addition, this should be well-thought-out because economies of scale and bundling effects may be lost as a result of the volume distribution.
Nearshoring: In particular, the just-in-time supply chain model relies on predictability and is vulnerable to sudden shocks like quarantines, geopolitical instability. This has helped to focus on suppliers from the vicinity of the production sites. This strategy for designing the supplier portfolio, known as "nearshoring", is particularly suitable for avoiding risks such as closed borders or long transport routes that lead to high CO2 emissions. The advantages are greater flexibility after implementation, lower risk and lower transport costs, along with its positive impact on the environment. On the other hand, there might be also a lack of regional supply base with appropriate capacity and quality and higher procurement costs due to higher wage costs.
Partnerships with Critical Suppliers: This refers to the targeted intensification of relationships, especially with strategically important or critical suppliers. Establishing close, strong, and enduring relationships with strategic suppliers make it easier to navigate through these immensely challenging times.
The central contents of this ecosystem partnership are joint planning and cooperative risk identification as well as their joint management. In this way, supply bottlenecks can be communicated at an early stage and reduced through preferred delivery. Establishing such relationships can be very time-consuming and is not always crowned with success. But it can contribute to increased delivery security through short-term, non-contractual solutions.
Supplier Market Intelligence: Through the systematic collection and analysis of information about supplier markets, sales channels, trends. Through the systematic collection and analysis of information about supplier markets, sales channels and trends, a competitive advantage is created in purchasing and supply management when procuring critical components. The aim of the continuous development of supplier market intelligence is to prepare well-founded information based on which decisions can be made that can strengthen the resilience of your own supply chain.
Breathing Buffer & Stock: The core objective of purchasing is security of supply, despite clear operation strategy trends towards reduced inventories in the sense of "just in time" and "optimized working capital". In the event of a crisis, it should not be a "taboo" to reconsider and adapt stockpiling concepts, at least for critical materials. Higher inventories are a well-established and effective tool. Supply bottlenecks are avoided and short-term flexibility in material consumption can be enabled. Nevertheless, possible consequences, above all higher storage costs and the risk of overstocking should not be underestimated. To avoid excessive stocks, this tactical measure can be adjusted, depending on the crisis situation, e.g. by adjusting the reorder levels for which reordering is carried out.
The pros and cons of these four measures are one of many aspects of a holistic supply chain resilience strategy. In summary, it can be said that long-lasting supply chain challenges aren't going away anytime soon. It is important for the manufacturing industry to adapt to these changes. POLARIXPARTNER is a helping hand for its customers in evaluating supply chain risks and providing valuable input on how these can be reduced in business practice through:
- A comprehensive and systematic analysis of supply chain risks and their mitigation
- Supplier market intelligence that is based on many years of industry experience of our consultants as well as
POLARIXPARTNERs' own supplier databases - Cost and supply chain models that depict the key influencing factors on supplier markets and supplier regions
- A quantification and evaluation of cause-effect relationships
- As well as well-founded recommendations for preventive management of delivery risks
When are we going to talk about your next supply chain resilience project?