3 Ways to Strengthen Supply Chain Resiliency During the Pandemic and Beyond

It is important to have a productive relationship with suppliers on either side of the organization to maintain an efficient supply chain lifecycle. In this article, Sunil Bakshi from ISACA outlines three best practices for working with suppliers to achieve the desired outcomes, especially during the current health crisis.

Supply chain management (SCM) is the management of the flow of goods and services. It includes processes that transform raw materials into final products. SCM involves the active streamlining of processes to supply products and services to customers and create value to improve customer satisfaction, while simultaneously creating a competitive advantage.

The ongoing pandemic has highlighted vulnerabilities in supply chains of various industries. Lockdowns in most regions have not only affected workforce availability but also the logistics, thereby affecting supplies. Despite having continuity plans, the situation created by COVID-19 revealed severe shortcomings in supply chains. Although organizations consider various scenarios while developing continuity plans, many seem to have missed the scenario of forced lockdowns across multiple regions.

When we consider supply chains, multiple entities take part in completing this chain or network. However, the individual enterprise view of supply chain is mostly limited to monitoring direct suppliers that provide products and services to the enterprise and receiving products and services from other partners or enterprises. These suppliers may depend on other suppliers for delivering products and services as well. 

Businesses are increasingly dependent on a robust supply chain in an increasingly interconnected global economy. To make the supply chain lifecycle efficient, it is best to establish a productive working relationship with suppliers on either side of the organization. To improve these relationships, an organization should adopt three best practices:

1. Categorize suppliers.
2. Rate ability to obtain priority services from categorized suppliers.
3. Conduct a risk analysis on the dependencies of the supplier. 

Let’s deep dive into these.

Learn More: Keeping SCM Agile with Automotive Logistics, 3PL & Connected LogisticsOpens a new window

1) Categorization of Suppliers

Suppliers of an organization can be categorized into four major groups based on the nature of the relationship and dependencies. A supplier can be:

• Strategic: Organizations share a relationship based on mutual benefits with strategic suppliers. The relationship is strongly coupled, where the dependency on suppliers may not be very high, like with tactical or niche suppliers, but essential for mutual benefits. 
• Tactical: These suppliers help in managing operations and cannot be replaced easily. Hence, they need to be considered for continuity.
• Commodity: These include suppliers that supply material and spare parts for manufacturing, and maintaining infrastructure and other consumables. There can be multiple commodity suppliers, which is better for continuity.
• Niche: These include suppliers that provide exclusive products and services without which it is difficult to sustain the supply chain. These suppliers are most difficult to replace and are critical for continuity. 

Learn More:  Top 5 Supply Chain Challenges in 2020 and Beyond

2) Ability to Get Priority Services From a Supplier

Apart from categorization, it is  important to understand an organization’s chances to get priority of service from the supplier organization: This can be understood by determining how important the supplier is to the enterprise and how important the enterprise is to the supplier.

1. How important is the supplier to the enterprise? 

The answer to this question depends on various factors, such as the product or services supplied, category of supplier, and the level of dependency of the organization on the product and services provided by the supplier. In case of outsourcing, it will also depend on the criticality of processes managed by the supplier and relationship with stakeholders.

1. How important is the enterprise to the supplier?

The answer to this question depends on the enterprise’s positioning within the business sector in which the enterprise operates and the value, volume, and duration of the contract. It is likely that an enterprise with the highest share of orders for a supplier will get priority during a continuity situation.

Learn More: What Is Agile Procurement and How Is It Changing SCM?

3) Risk Analysis

While understanding relationships, organizations also need to consider various risks for supply chain management that may affect relationships, including IT-related, and human resources, and strategic ones. Most risk can be addressed by selecting multiple suppliers, but this is applicable for commodity supplies and, to some extent, tactical suppliers. Other categories, particularly niche supplier organizations, should deploy a continuous monitoring mechanism. Some precautionary measures include:

A. Performing a risk assessment when selecting and onboarding suppliers (including subcontractors) by evaluating:

• Location/locations from where they might deliver the services.
• Ability of the vendor to switch to a different location and deliver the work on short notice.
• Competency, including knowledge and the skill sets available with the suppliers to handle the enterprise requirements at multiple locations.
• Financial stability of the suppliers to support multiple location delivery and ability to switch to a different location to deliver services.
• Agility of suppliers and their technology solutions.

It is critical to repeat this process in a situation that demands a risk reassessment or when the enterprise wishes to enhance the service portfolio for its supplier.

B. Review the supplier contract terms to ensure they include:

• The hiring of supplier employees. Consider including a clause for the enterprise hiring suppliers’ employees/subcontractors in case of termination or closure of services.
• Periodic performance and compliance audits.
• Monitoring service levels and performance of the supplier and, per the contract, set periodic intervals to report this information.
• Updating business continuity plans by supplier to meet enterprise requirements.
• Training internal technical staff adequately to handle the systems in case of any contingency, to avoid overdependence on the supplier (especially IT-related suppliers). 
• Exit process: In case of termination or change, the supplier should continue to provide services (without any compromise in quality) up to a reasonable period (three or six months) and assist in knowledge transfer to a new supplier.

C. Avoid awarding a contract to a single supply chain partner. However, in case such a situation exists, due to a strategic relationship or the unique nature of the product and services provided by the supplier, the enterprise needs to put a plan in place to reduce this dependency by onboarding additional suppliers in a phased manner.

D. Measure and monitor the dependency of other organizations on a single supplier, resulting in industry level concertation. Coordinate among industry players to disseminate information and coordinate with supply chain partners to respond to, and monitor associated risks jointly.

E. Monitor risks to identify early signs of possible materialization using risk indicators. Enterprises can initiate an action plan to contain the possible impact. The monitoring process includes:

• Periodically monitoring the performance of the supply chain at regular intervals to understand impact due to dependency.
• Identifying risk specific to suppliers and taking appropriate steps to handle risks, such as investing time and effort in creating an alternate source for the supplies.
• Communicating the dependency levels, performance of suppliers, deficiencies in service, and supplier’s capacity to handle new business with the risk management committee.

Learn More: Transforming ERP with the Help of Intelligent TechnologiesOpens a new window

Conclusion

There are many aspects involved in relationship management in supply chains. It is crucial for organizations to determine which approach works best for them so that they can develop strong supplier relationships and smoothly manage any disruptions that could imperil their operations.

Let us know if you like this article on LinkedInOpens a new window , TwitterOpens a new window , or FacebookOpens a new window . We would love to hear from you!