Supply Chain complexity is by product of SKU expansion, new markets, shorter product lifecycles, geopolitical pressures, and dozens other factors. Are you managing complexity or is complexity managing you?
Getting a product into the hands of a customer involves many interconnected internal teams, companies, and partners, has a large number and variety of processes, systems, and interactions that can be dynamic.
We believe an important thing to keep in mind while dealing with complexity is to differentiate between controllable and uncontrollable. You cannot plan the weather, but you can plan for Chinese New Year shifts. Necessary complexity is a value that customers are willing to pay for. While there is no simple solution, we find there are 5 key strategies successful companies use to manage complexity:
1. Visibility: If you do not know where your material is or when it will arrive, if you do not know what your production status is, if you are looking across thousands of data elements to find failure you are not managing your business, you’re managing your transactions. Alerting and exception management have become the standard to align on a common set of performance expectations. If your supply chain is not telling you when you are at risk, you are behind.
2. Procurement Within Supply Chain: Procurement must be integrated into the “Supply Chain” team that develops, plans, purchases, moves, makes, delivers. As an everyday example the cost of freight, inventory, and material price all must be aligned for optimal EBIT. If the process is not treated a single effort the result is always suboptimal, as teams reach toward siloed goals.
3. Disciplined Forward Planning: Strategic, Annual, SIOP… engaging in demand and capacity planning is the primary path to synchronize not only supply and availability, but to also include investment in new capacity, product introductions and required capabilities, with visibility to your means of production either internal or outsourced to deliver consistent performance.
4. Supplier Development: Businesses must consider a combination of investing in partners and rationalizing marginal players. How do you make that decision based on performance and assurance? Do you know your tier 2 suppliers, let only the value stream back to raw materials? Supplier development is Risk Management, keeping your costs controlled and supply available.
5. Near/Reshoring: Many businesses should be evaluating their manufacturing and sourcing strategies. Key factors like locations of raws and tier 2+ suppliers and converters, area infrastructure maturity, and transit times all play an equal part of the equation with labor costs, tariffs, land price, and currency. Your strategy should come first on a holistic basis looking out several years across, with a balanced view of these factors.
Contact us today for more details on our approach to reducing and managing complexity in your supply chain.
Bruce Work – Vice President Supply Chain
Lawrence Keeley – Senior Vice President