Top 4 Ways to Avoid Being Held Hostage by Your Supply Chain

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Posted Sep 6, 2017 8:00:00 AM by Ryan Foust & filed under enterprise mobility solutions

Supply chains are a never-ending cycle of moving parts and countless variables, where those parts and variables are constantly changing. That in turn, means you have to anticipate thousands of details, using processes and technology to stay in charge of your supply chain, rather than reacting to it.

Yet the cruel truth is, your control over your supply chain is only as strong as any of your partners’ control over their piece of it, which is often dependent on how well they manage their own supply chain. 

You don’t have to be victim. There are things outside your control, but you also have numerous options to avoid being held hostage by your supply chain.

Suffering from Stockholm Syndrome

Sometimes it’s your supply chain that’s being held hostage. New business initiatives and strategies get discussed and implemented without input from those responsible for the company’s supply chain. The result is that you’re now expected to fulfill new business goals that your current network of vendors, resources, and workflows may not be designed to meet. The result is you scrambling after the fact to support decisions you were never a party to.

This break in communication and coordination happens often between Sales and Marketing, and those responsible for the supply chain. Marketing or Sales push out new campaigns and promotions with no contribution from and often little notice to you. Once the demand starts to roll in, no one is going to point the finger at Sales and Marketing for growing demand. Any fulfillment problems that arise will always become yours. 

Yet if these other departments had consulted with supply chain managers, together they could have done some analysis on past demand and fulfillment patterns, gotten feedback from certain vendors about capacity, and put together a plan that maximized both demand and fulfillment.

A survey by McKinsey found that the “inability of functional groups to understand their impact on one another is the most common barrier to collaboration for resolving the major supply chain trade-offs.” The research group’s article on these barriers tells the story of a consumer packaged goods manufacturer that was suffering from this lack of internal communication.

Once the multiple departments did start working together, they found that it was just five customer accounts that drove the greatest demand volatility in response to their promotions.  By planning together, Marketing and Sales staggered their promotions based on analysis of these accounts’ past demand behaviors. Taking this collaborative approach, the company reduced its demand volatility by 25%.

Tip #1: Supply chain managers need to insist on being part of the strategic decision making circles within the company. Create interdepartmental teams tasked with coordinating the regular communication and collaboration among departments whose actions impact supply chain success.

External Threats

As challenging as it may be to set up interdepartmental teams with authority to influence decisions, it can be even more challenging to control what external actors on your supply chain do. It’s the rare business that has enough juice to enforce unilateral demands on its suppliers. That means that cultivating trust, regular communication, and regard for everyone’s mutual benefit are the critical “soft tasks” of supply chain management.

Tip #2: Make deliberate decisions about what issues your company does need to have control over regarding a supplier’s actions. What materials must meet certain quality standards? What labor standards must the supplier’s suppliers meet? How quickly must a supplier be able to deliver on how short of notice? You can’t control everything, but you can determine what your business critical non-negotiables are.

Once you do, manage your supplier contracts and supplier performance programs accordingly. Putting these terms in supplier contracts isn’t sufficient. You must make managing supplier performance and holding them accountable a formal part of your supply chain processes. The Aberdeen Group found that high performing companies with active supplier performance management initiatives averaged a cost savings of around 12%.

 Tip #3: As with your financial portfoliodiversify. This will make some responsibilities more complicated, like implementing that robust supplier performance management program. Even so, diversification is necessary so your company’s priorities and costs aren’t at the mercy of just a few suppliers.

For manufacturers, having too few suppliers give them too great control over your total bill of materials. That means your company has few options to reduce costs in tough times. For retailers, what happens to your stock when a key supplier decides you’re not a preferred account and prioritizes a competitor’s higher demand at your expense?

Like everything in supply chain management, this is a balancing act. You need a diverse range of suppliers, yet you still need to build the relationships with each that keep communication flowing and encourage teamwork to address the inevitable obstacles. Hey, if supply chain management were easy, anyone could do it.

 

Tip #4: Stick with suppliers who have supply chain management standards as high as your own. These are vendors who are implementing the advanced technology and workflows needed to thrive in the increasingly complicated world of supply chain management.

Working with supply chain partners where you can integrate systems that automatically share critical information and can dynamically respond to changes makes everyone’s operations more efficient. Use of sophisticated technologies and communication channels means

  • You and your suppliers have greater visibility into real-time statuses and projected needs.
  • Suppliers have higher fulfillment accuracy.
  • More accurate demand forecasting, which reduces cash flow stress.

It All Boils Down to Clear and Timely Communications

What does any supply chain manager want from its supply chain partners? Communication, quality, capacity, and accuracy. The growing ability to meet all these needs through strategic use of technology tools and data analysis is a huge opportunity for companies as long as they partner with supply chain vendors who take supply chain management as seriously as they do.

Most importantly, you need to be a company that shows its own commitment to using the best technology to manage your own supply chain and inventory if you want to be partner with similar companies. Contact us today so we can help you implement the tools that optimize your own supply chain management.

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