When disaster strikes: A procurement toolkit to mitigate supply chain disruptions
Purchasing pros are often the first responders when it comes to interruptions of supply.
Disruptions in the global supply chain can come anytime and from anywhere, and procurement professionals are often the first to get word of it.
Missed deliveries, customs or logistics snags, or even a document snafu preventing a supplier from completing a new design project may, in turn, prevent the buyer’s company from meeting customer expectations, multiplying risk along the chain. Faced with such issues, Procurement becomes like an EMT, tasked to best serve the customer with a sense of urgency and an eye for complexity.
Job one of procurement is to maintain continuity of supply. Today’s supply chains may boast integrated systems and digital connectivity, but at the end of the day much of the risk mitigation happens daily behind desks and phones. To do so, procurement professionals must count on a set of both proactive and reactive tools that help minimize or mitigate disruptions.
Resilient chains count on proactive procurement teams
Much of the tools needed to respond effectively to a crisis are gathered far before disaster strikes. A proactive procurement department should make every effort to build a strong foundation by staying aware of risks, trends, and company or supplier needs at all times.
Here are three strategies, and some tactics, to build a resilient supply chain:
Know your company
Procurement operations, supplier selection and performance must align to the needs of your business. When crafting a procurement strategy, make sure you – and your suppliers – truly understand the priorities, financial strategies, and risks that affect your company (and theirs).
- Align your strategy with needs — Are you chasing cost savings with lean initiatives, capturing market share with a sprint to market, or enhancing margins with customer intimacy programs? All three? Know where you’re going, and share that information with your suppliers.
- Calibrate your financial lens — Financial performance is the ultimate measure of business success, so make sure you understand key business concepts like ROI or margin. However, for the CEO, the final arbiter of supplier performance is registered as the cost of goods sold, so watch that bottom line.
- Create a risk register — Awareness of risk is critical, so track both current and potential disruptors. Look at high-level risks like hurricanes as much as low-level risk like a unique supply shortage. Label them according to intensity, and don’t be afraid to mitigate middle intensity risks before they escalate.
Learn your supply chain
Procurement is the first line of communication for a supplier, so it’s up to the department to know when, why and how disruption can occur. Procurement folks with deep contact lists and a willingness to solve problems get recognized, and perhaps promoted.
- Map out the tiers — While it may not be practical to map out every leg of the supply chain, critical path materials should at minimum have a supply chain plot plan identifying critical links and methods of communication for all the players.
- Practice four-way communication — Supply grids encompass internal and external operations. Communicate horizontally and vertically, supporting suppliers with accounting and engineering help, while talking with customers and supply chain partners to improve service.
Study the world
The supply chain is truly global, and the world seems on the cusp of change. Procurement professionals should be prepared for economic, political and technological disruptors. Stay ahead of the curve by staying informed and continuing to develop your skills.
- Assess current events — Geopolitical tensions, economic trends, environmental pressures and global political turmoil make up a hardy stew of potential supply chain risk. Will events like Brexit, tensions in the Korean Peninsula, or flooding in California impact your prime supplier’s manufacturing operations?
- Keep learning — Professional development is your responsibility. There is no excuse in not keeping up with current trends in procurement, operations, and logistics. The world is a click away, “I didn’t know” just doesn’t work anymore.
When disaster strikes, react accordingly
When disaster strikes, and it will, look at it as a learning opportunity.
Many years ago one of my engineering colleagues said to me “don’t sweat it Rich…there is a workaround for everything." Jim was right. There are no new problems, just different ways to solve them. However, here’s one tried-and-tested process that can help get you started:
Double check your information
Panicking never helped anyone and chances are there are those in your organization already screaming about down production lines, unhappy customers, and the impending business apocalypse due to a late shipment. Take a moment to double check what you know. Having full information is empowering and takes emotion out of the situation.
- Keep your wits about you — Take a breath, analyze the situation, get the full story from the supplier including the get-well plan, and look at alternatives to solve the problem. Maintain a professional presence to diffuse emotional responses and show that there are adults in the room.
- Check on the validity of emergency — Far too often we rely on a computer report to identify a missed delivery or material shortage. Make a call, take a walk, or send a text: The story in the cloud is often different than the story on the ground.
- Learn the whole story — Contact the offending supplier to find out the real story. Discuss problems, solutions and alternatives. Develop a ‘get well’ plan. Quantify the solutions in time and money and present those findings to the appropriate decision makers. Work through the tiers if need be to get to the core of the issue causing the turmoil.
Stay updated and find alternatives
Once you have assessed the severity and validity of the situation, it’s time to act. We learn a lot when working through a problem, and sometimes, we even come out better for it.
- Find an alternate source — Sometimes you just need to find another supplier and place another order. I’ve stumbled on many good suppliers when existing suppliers have failed for one reason or another. And, a good supplier will not take advantage of you during your emergency; they want future business.
- Develop second sources for critical products — If a sole source supplier is creating a potential risk, invest in qualifying a second source. A good supplier will understand that they may have a secondary print position. But they will stand ready if the primary supplier fails. Some safety stock may help as well.
- Keep track and communicate — Update the delivery information and the status of the problem resolution to the necessary stakeholders, based on the criticality of the disruption. Being as accurate as possible (to the hour) will keep people off their toes.
I’ve worked the line and staff positions in several manufacturing companies and I’ve never seen the factory go dark, a customer quit, or a supplier try to fail on purpose. In fact, I’d say half of the problems are caused by the organization doing the purchasing.
No matter the planning or the preparation, most of the risk issues are out of your hands. Resolving them, and working through the root cause problems so they don’t reoccur, is not only fun, but also your job.
Editor's Note: This article is part of a series on supply chain risk management. Click on each function below to read how your department can help build resilience.
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