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Eight Steps to support your supply chain through crisis
There’s no doubt that COVID-19 has had a debilitating effect on supply chains throughout the world. The health and economic impact of the virus has been significant, hitting businesses on multiple fronts. At the same time organisations must work to protect their workers’ safety, they must also safeguard their operational viability, something that is increasingly coming under strain from a historic supply-chain shock.
Some businesses are flexible and agile enough to mobilise rapidly, setting up crisis management mechanisms and implementing contingency plans. This will help get them through the worst of the short-term damage, but what of the long-term? What steps can supply chain leaders take now that will help them remain competitive years from now, regardless of whether COVID still poses a risk, or if it has been superseded by another destructive force?
At APS, we are focused on working manufacturing and supply chain companies to help them through times of difficulty and prepare them for a brighter future.
We’ve highlighted eight steps that are designed to help manufacturers mobilise their supply chains now, and for the foreseeable future:
1. Set clear objectives and make yourself attractive to long-term suppliers.
How long would you like to establish a supplier relationship for? What type of relationship would you like? What service and support do you expect? Which business stakeholders need to be involved?
If you engage with suppliers on a longer-term basis, you’ll achieve consistency and on-going efficiencies with lead times, quality and cost benefits. It also enables you to work more closely in collaboration. The manufacturing businesses that are emerging out the other side of the COVID crisis are those that have built successful long-term supply chain partnerships. The businesses that were able to negotiate new payment terms with suppliers, who showed them the patience and trust that their loyalty deserves.
2. Which suppliers could supply to you right now?
Research the market – use your networks/membership organisations, the internet, trade associations and talk to others, including your current suppliers.
A lot of supply chains that seemed solid just a month ago, are now no longer available to us. But this doesn’t have to be a catastrophe. There’s a lot you can do to access new supply chains and if you do your due diligence, as we’re proposing in this article, then you may have more robust supply chains for your future competitive advantage.
3. What are your suppliers’ current capabilities?
In terms of your delivery performance, quality performance, accreditations, financial strength, technical capabilities and relationship management.
This is where your due diligence really comes into play. Get this right, and you won’t look back, but get it wrong and it could be costly, not just for your business, but for customers and end users. Right now, the quality of equipment, such as ventilators, is quite literally life or death. You need to get this right, and there’s help available to make sure you do.
4. What are your terms of business?
Work on your terms and not your supplier’s terms. Which elements are most important to you and your company right now?
In these uncertain times, like many thousands of others, you’re probably looking to secure the survival of your business. And manufacturing in the UK has never been more important than it is right now. In any Corporate Social Responsibility policy, financial sustainability is one of the foundations for any business. Pay attention to your terms of business and make sure that they safeguard your company’s sustainable future.
5. Assess each supplier and measure/score performance
Identify any gaps within your current requirements and make sure you have credible evidence to support your scoring!
This is a way of benchmarking, so that you can make sure you have the right supply chains in place, especially if you’re a larger company with multiple products and multiple supply chains. Work out which KPIs and benchmarks are important to your business, customers and suppliers. This is all about supplier relationship management, where cost pricing is not always the key driver.
6. Negotiate with suppliers around the info gaps you have identified
Make sure you give every supplier a chance to meet the success criteria you’ve set. Be prepared to negotiate on capabilities and terms of business.
We are in difficult times when all around us has descended into chaos, but there are lots of things you can do to mitigate risks, both now and in the future. Understanding your supplier markets in as much detail as you understand your customer markets will mean that you can negotiate effectively in ways that are mutually beneficial.
7. Be clear on costs
Never has this point been so crucial as it is now. Once you’re clear on your supplier’s capabilities, then discuss costs.
What is your cost strategy? Are there any hidden costs? What is your Most Desirable Outcome (MDO)? What is the Least Acceptable Agreement (LAA)? What is the Best Alternative to a Negotiated Agreement (BATNA)?
And remember that effective supply chains aren’t always built on the cheapest cost, you need to factor in value-driven supply chains, as well cost-driven supply chains. It’s all about having that fine balance. The key message is to be clear on costs and understand what this means. Does a supplier with higher costs give you the higher quality that you need? Does that higher cost have added value in terms of reliability? It’s no good having a cheaper component if you’re going to have to wait six months for it, particularly if you need it now. Ventilators and PPE equipment for example remains in high demand, but it’s not something organisation can wait weeks for.
8. Select the best overall supplier
Once you’ve gone through the process of doing your due diligence on what the business needs are, what the supplier market place looks like and offers, and you’ve considered all of the elements, then you’ll be in a position to select the best overall supplier.
Overlook one or more of these steps and the cost could end up being a lot higher than you anticipated on numerous levels. The best overall supplier is the one that provides you with the right levels of quality and service at a value-for-money price (note we didn’t say ‘cheapest price’ here).
A final note…
In times of crisis, we can sometimes opt too quickly for the easiest option, which will be more costly in the long run. Instead, all you need to do is pay attention to the detail, do your due diligence and keep an eye on the bigger picture.
We hope you’ve found this information useful, if you have any questions or would like further help or advice, please contact us on 0330 311 2601 or info@apsuk-ltd.com