Going Against The Current – Why Upstream is Just as Key for Supplier Integration
Is a lack of visibility still plaguing your supply chain and hindering your risk management efforts? Looking at upstream activities could be key to turning this situation around.
2022 has felt like a bit of a ‘blink and you’ll miss it’ sort of year so far. It doesn’t feel like any time at all has passed since we looked at the crises facing supply chains at the beginning of the year, and the planning procurement needed to do to mitigate risks and rebaseline their continuity of supply. And then, by the time we wrote our second article in April, many of the green shoots of recovery had been firmly squashed by fresh global lockdowns and the war in Ukraine.
No-one could have anticipated, even after the first quarter of the year, that COVID would still be wreaking havoc on supply chains and global logistics because of a two-month lockdown in China. Equally, no-one could have anticipated the Russian invasion of Ukraine, with its countless impact on human lives, as well as the shattering of fragile supply chains and undermining of recovery plans and risk strategies.
And yet, even after the events of the past three years, sources state that over three quarters of organisations still have limited or poor visibility of their supply chains. This lack of visibility is forcing organisations to manage risk and disruptions on a day-to-day basis, without a clear picture of how they will mitigate risks occurring next week, next month or next year.
Too Late to Play Catch-Up
The war in Ukraine is unlikely to end any time soon. Even if it were to end tomorrow, irrespective of the outcome, the knock-on effects will continue to be felt for years to come. Prior to the conflict, Russia and Ukraine accounted for around 20 percent of EU imports of finished steel goods, while Ukraine is the world’s biggest supplier of noble gases. These industries alone may take decades to fully recover.
As a result of this, procurement teams able to plan with a long-term horizon are already looking for new, permanent, sources of supply for raw materials, while at the same time as managing current supply issues, lead times and costs. Even being able to get hold of materials is only half the battle, as the same issues abound in the logistics industry where demand for air, sea and road freight cannot currently be met.
The current situation is leading many procurement teams to order increased volumes to be held in stock and mitigate against fluctuating supply and availability issues. While this is helping some organisations, increased order quantities are pushing lead times and costs up, meaning many smaller organisations are struggling to get hold of parts and materials that they need.
However, despite inventory holding being increased in the past few months in order to account for supply chains not being able to respond as quickly, organisations are now reversing this strategy and looking to procurement to actually reduce inventory. This is requiring procurement to create a delicate balancing act between responsiveness and inventory risks such as greater sunk costs and the possibility of over-supply and obsolescence. It is not an easy balance to strike and it is causing major headaches for many.
These are only a handful of examples of the major risks and considerations facing procurement. Yet many organisations have found themselves trapped in a reactive cycle, fighting new fire as they emerge, rather than getting into a position where they can be more proactive. Without changing their approach soon, many may find themselves in a position where they can no longer play catch-up, and may ultimately never be able to recover.
Looking to the Long-Term
The situation is not all doom and gloom. There are many organisations who have managed this reset and have positioned themselves to not only survive, but thrive in the coming years. What sets these organisations apart is that their procurement teams have shifted their planning horizons to five years and beyond. This is providing a more complete picture of potential risks and the ability to plan effectively for what is coming.
What this gives procurement is a better platform from which to provide a service to key customers and stakeholders, while still delivering the day-to-day value required of them. Not only does this mean ensuring goods get to where they need to be, when they need to be there, but also accounting for increasingly important factors such as sustainability and the impact and footprint of the entire supply chain.
Alongside this is the requirement for procurement to work closely with stakeholders and customers, keeping on open, two-way flow of communication. This will help with the understanding that the supply ‘tap’ isn’t being turned off, but will have to be measured in order to manage the risks associated with increased stockholding for the organisation.
End-to-end integration is key when it comes to success in the short and long terms. And while downstream activities have received greater focus as procurement looks to service its customers’ needs, the global climate requires a closer look upstream too.
Increasing Multi-Tier, Upstream Visibility
When procurement has focused on delivery to customers, frequently downstream activities in the supply chain are the ones that receive the greatest focus. However, particularly given struggles with sourcing raw materials, procurement teams now understand the need to focus on upstream supply chain activities too, especially where key underlying strategies are being changed.
This is where widening the scope of end-to-end integration within the supply chain will play a major part. Integrated Business Planning (IBP) and supporting technologies can help with long-term planning exercises, allowing procurement to challenge processes and inefficiencies across multi-tier supplier relationships. Procurement can work more closely with these suppliers to create strong relationships that are built around the 5 or more year time horizon.
Flexibility will be key here, with two-way relationships required to enable a continuous development of plans and strategies, with reviews planned regularly to account for the changing environment, rather than setting something in stone that may be good for now, but won’t be fit for purpose in the long-term.
Shifting horizons may be the best way to ensure long-term survival. Those who don’t move now face an increasingly uncertain future.
Our series on Procurious aims to show how end-to-end supply chain integration can help supply chains weather the storms of 2022. If you’d like to find out more about how IBP and technology can support this, get in touch with us on the Oliver Wight website.