A flexible supply chain organization requires not only a strategic leader, but also input from managers who represent the traditional supply chain functions of planning, sourcing, manufacturing, logistics, and also sales and marketing, among others.
Collaboration is Critical
The leading supply chain organizations work closely with their strategic and core suppliers on issues that range from financing to emergency contingencies to labor and environmental concerns (see chart below). Tight collaboration enables organizations to better avoid risks, identify problems early and resolve issues quickly. Many companies, for example, proactively alert suppliers immediately when demand and production changes are likely. Stronger collaboration can also help lessen the bullwhip effect—supply chain variability at the various points in demand in excess of actual demand variability—that can result from many actions taken independently.
Some businesses are further cementing supplier relationships by providing financial aid and other assistance to unstable supply partners. They may, for instance, assesses key suppliers’ ability to withstand financial shocks and offer short-term financial loans, provide an understanding of what is fueling cash burn, and help improve net return on production.
It goes without saying that this level of visibility and collaboration requires a high level of trust, as well as more open sharing of strategic and tactical information. Companies must ensure that sufficient focus and trust are in place before they begin to deepen supplier relationships because without it, even the best governance agreements and tools won’t yield the desired results.
It may be necessary to establish supply chain risk management programs that require open access to key suppliers’ facilities and business practices. Segmenting suppliers into various strategic categories and establishing new, tailored supply chain management programs is becoming the new norm. The generated transparency is essential to anticipate deficient products or workplace conditions that may result in negative publicity, revenue loss and customer dissatisfaction for the company.
Many leading companies are also incorporating codes of conduct and sustainability criteria into supplier contracts. As a result of the Dodd-Frank Act, for example, many manufacturers are working to ensure that the mining of conflict minerals they and their suppliers use were not the result of civilian exploitation in a war-torn region.
