How to Get Ahead in Managing Your Supply Chain
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It’s time to take heed of what you’ve learned about your supply chains during the pandemic and manage even better in this new year.
“The challenge for companies will be to make their supply chains more resilient without weakening their competitiveness,” writes Professor Willy C. Shih in Harvard Business Review.
“To meet that challenge, managers should first understand their vulnerabilities and then consider a number of steps—some of which they should have taken long before the pandemic struck.”
The Information Breakdown
Supply chains are complex, and the pandemic forced some companies to see some of the complexities, specifically the lack of information they had about their own supply chains.
For example, you may have tier 1 suppliers who rely on another tier of external suppliers and contractors, who count on another group, etc., explains Shih, the Robert and Jane Cizik Professor of Management Practice in Business Administration at Harvard.
He advises businesses to pay closer attention to the multiple tiers in your supply chain.
“The dirty little secret among supply chain professionals is many companies don’t know their second or third or fourth-tier suppliers are because it is so complicated and there are so many of them,” Shih said in a December interview on NPR’s Here & Now.
It makes sense, he says, that manufacturers turn to suppliers and subcontractors who narrowly focus on just one area, and those specialists, in turn, usually have to rely on many others. “Such an arrangement offers benefits: You have a lot of flexibility in what goes into your product, and you’re able to incorporate the latest technology,” he says.
“But you are left vulnerable when you depend on a single supplier somewhere deep in your network for a crucial component or material. If that supplier produces the item in only one plant or one country, your disruption risks are even higher.”
Supply Chain Challenges
The worldwide pandemic revealed glitches in the wider supply chain early on, resulting in clogged production lines and shortages on the shelves.
Shih said he was surprised to see how manufacturers take the “reliable, dependable logistics” of the global supply chain for granted.
While improvements in the supply chain were made, issues continue to cause lapses in supplies, Shih adds. And he predicts more spot shortages where supply chains remain disconnected. Walmart, for example, was facing a shortage of aluminum cans in December.
Research Your Chain
All businesses need to understand where their vulnerabilities lie if they want to avoid supply issues going forward. And that could take some work, Shih says.
“It entails going far beyond the first and second tiers and mapping your full supply chain, including transportation hubs,” Shih writes in HBV.
And for some companies, he says, the digging could be time-consuming and expensive.
“But a surprise disruption that brings your business to a halt can be much more costly than a deep look into your supply chain is,” he says.
It’s not easy to look deep or to renegotiate supply chain tiers in a recession but the mapping work is critical.
“The supply chain is the foundation of any product business and must be a priority, rather than an afterthought,” writes Bill Hobbs, Chief Revenue Officer for Anvyl, in a blog.
“Without a clear picture of how suppliers operate, companies are vulnerable to unnecessary expenses, delays, and disruptions,” he writes in a post for Inc.
The crisis has presented an opportunity for businesses to take a fresh look at their supply networks, to take steps to understand their vulnerabilities, and then take actions to improve robustness, Shih says.
Hobbs recommends business owners and managers not only find out who their suppliers are and where they’re located, but also gather details about their key processes and timelines.
“When you don't know who makes each of the subcomponents that go into your product, you lose visibility into factors that affect the product, like raw material availability, scheduling, and production delays,” says Hobbs.
Shih, the Harvard professor, adds: “Once you’ve identified the risks in your supply chain, you can use that information to address them by either diversifying your sources or stockpiling key materials or items.”