In crisis situations, companies that operate global sourcing become painfully aware of how sensitively supply chain disruptions can affect them and cause them economic damage.
How can companies act proactively to be well prepared in the event of imminent or even acute supply and delivery bottlenecks? Rainer E. Volk, Managing Consultant at enomyc, has dedicated himself to the topic at hand.
Due to global sourcing approaches, many of the formerly classic sources of supply and delivery flows - mostly covered over shorter distances within Germany or Europe - have shifted to distant regions. This is a trend that continues to this day, particularly in order to further minimize procurement costs under the constantly intensifying competitive conditions.
However, this goes hand in hand with the fact that the complexity of business relationships is increasing, the necessary supplier management has to be adapted and proactive risk management has to be established. The aim is to exclude potential supply risks as far as possible from the outset and thus maintain supply capability in the long term, even in crisis situations. Irrespective of the sector, location or size of the company, companies that operate global sourcing become painfully aware in crisis situations of how severely supply chain disruptions can affect them and cause them economic damage.
How can companies be proactive and best prepare for supply disruptions? How can they also minimize the damage already caused by supply bottlenecks or gaps in supply and put a time limit on them?
Differentiate between "supply chain disruptions
An interruption of the supply chain requires - especially with regard to possible countermeasures - a differentiated consideration. Three cases apply here:
- Acute: The supply interruption has already occurred.
- Imminent or latent: Supply is still guaranteed, but threatens to be interrupted in the very short term.
- Potential: There are no acute supply bottlenecks, but they are theoretically conceivable due to the sourcing strategy and the nature of the business relationship (e.g., single sourcing).
Scenario 1: Supply chain failures that have already occurred
In the case of tool-based components with a higher level of complexity and only one supplier, a solution is certainly not trivial, but not impossible. However, the higher the requirements for the product and the dependence on only one or very few suppliers, the higher the effort and the transaction costs for corresponding alternative scenarios will be. To this end, each individual case must be examined in detail and possible courses of action considered.
First, however, costs are incurred - including relocation or start-up costs as well as costs for procuring new tools. A change of supplier also always causes additional expense, for example due to necessary trials, approval procedures and more. In the single sourcing approach, companies have one active (B2B) contact for a component. Other, potential suppliers or secondary suppliers for exactly this component have often not been considered for some time and have been phased out of the supplier portfolio. In such a constellation, short-term access to alternative suppliers is often difficult.
Unless appropriate measures have long since been initiated - usually a result of decisions made far in the past - the time factor is also an adversary that can hardly be caught up with. It does not allow time-intensive market investigations to solve acute problems. This is where experienced experts can step in by actively steering the process, identifying necessary measures and implementing them together with the players involved in the process.
Scenario 2: Functioning supply chain with imminent risk
Time is also short in this situation. Nevertheless, as long as the supply chain is still functioning, there is greater freedom of action and more possible solutions.
If companies recognize a latent risk, immediate action is required: Active risk management must be set in motion within supplier management and all necessary measures triggered. To this end, emergency scenarios are conceivable with existing suppliers, but also with alternative sources of supply.
Our many years of experience in strategic purchasing management show that in this situation, the status quo must be recorded within a very short time and a suitable program of measures set up. This includes the qualified analysis and classification of potential risks with downstream action options and implementation plans as well as suitable monitoring tools. The entire subsequent process should be accompanied by experts and affected companies should be shown ways in which such events or their negative effects can be significantly reduced in the future, if not largely eliminated.
The purchasing worlds have changed significantly over the years against the background of global sourcing. However, not every new idea, every new measure and the break with tried and tested methods or functioning sets of rules led to sustainable results. Thus, strategic partnerships with suppliers - characterized, among other things, by an active, open and, as it were, partnership-based design of business relationships - have paid off in many crisis situations and preserved companies.
The boundary conditions and rules of the game in the "imminent risk" scenario are very similar to those in the acute default scenario: The affected company will also have to learn the lessons from this situation and incorporate them into its current and future purchasing philosophy and strategy.
Scenario 3: Potential supply and delivery bottlenecks
In this scenario, the focus is not on acute pressure to act, but on the strategic component. Possible risks and resulting effects in the supply chain must be anticipated at an early stage and suitable (counter)measures defined. Nevertheless: companies can act proactively in order to be well prepared in the event of imminent or even acute supply and delivery bottlenecks.
In concrete terms, this means in particular: The risk potential of the supply chains from a technical, qualitative as well as commercial perspective must be analytically assessed in good time. On this basis, the necessary action programs must be defined and implemented consistently in good time before a specific crisis situation occurs.
This approach offers enormous potential for cost optimization - not only because the threat of damage repair costs can be largely avoided: Positive effects are achieved in particular when hedging is initiated at an early stage and actively implemented by all process participants - both inside and outside the company - and is based not only on the purchase price but also on the total cost of ownership (TCO).
This includes supplier selection, strategic supplier development and risk management methods, to name just a few aspects. This approach ultimately leads to a revision of the respective purchasing policy and purchasing strategy.
What questions do you currently have about this topic? We would be pleased to discuss them with you. We look forward to hearing from you.
