Stop Hedging Your Bets – Integration is Key to a More Resilient Supply Chain
The crises facing global supply chains are not going away. But organisations who plan effectively and build integrated end-to-end supply chains may be the ones who come out on top.
Back in January when we wrote the first article for this series, we said that global supply chains were in crisis. And it wasn’t just a single crisis impacting one part of the supply chain, it was multiple, on-going crises that Procurement and Supply Chain professionals were battling on a daily basis.
However, green shoots were beginning to emerge even then. While COVID-19 was still wreaking havoc on organisations and supply chains, many countries were reducing restrictions and coming out of lockdowns. Demand for raw materials and electrical components was massive, but many experts were predicting that this would level off by the start of Q3.
But supply chains were not out of the wood – far from it. What happened next, not three days before our first article was published, no-one could have predicted.
Fragile Supply Chains Exposed
On the 24th of February, Russia invaded Ukraine, starting a conflict that, to this day, has claimed tens of thousands of lives, and made millions of people homeless. There is no counting the cost of human lives, or the impact of this in Ukraine. But for global supply chains, it heralded another period of huge disruption.
The war in Ukraine and resulting sanctions on Russia were far from the only ones having an on-going impact on supply chains too. The knock-on impact of this on the price of oil and gas, the scarcity of raw materials, on-going tensions between the US and China, and fresh COVID-related lockdowns in China – it seemed as though the next crisis was just around the corner.
End-to-end supply chains were exposed as even more fragile than they had seemed in 2021. This fragility stems from a lack of organisational focus on the long-term horizon, because it is so far removed from regular sourcing activities. Organisations are failing to adequately plan for the long-term future in their supply chains, or getting to grips with additional layers of complexity that they now face.
The Ripple Effect
As we have said before, organisations are placing too great an emphasis on short-term problem solving and keeping customers happy. However, a short-term focus leaves organisations vulnerable to only finding out major issues when they are told about them, rather than knowing in advance.
Cue much running around like headless chickens, desperately trying to find viable solutions, whilst simultaneously playing ‘follow the leader’ when it comes to finding other sources of supply.
Take semiconductors, for example. The precious metals required for manufacturing these are usually sourced in Ukraine or Russia, making them currently unavailable. Where organisations may have looked to China in the past, supply chain issues resulting from the pandemic have made this unviable, resulting in demand from other regions shooting up, lead times being pushed out dramatically and prices sky-rocketing.
This situation is further complicated by Political or Socially Responsible decisions made by organisations relating to Russia. Many have elected not to do business in or with Russia at all, while others, without this flexibility, continue to trade there, but only in a ‘Russia for Russia’ scenario. The ripple effect from these decisions is enormous, and not something that organisations are dealing well with.
Alignment, not Hedging Bets
How, then, can organisations do better? How can they shore up their supply chain, creating greater resilience and stability? The solution comes back to placing a greater focus on the end-to-end supply chain and building in a greater level of integration.
Instead of placing a large focus on the short-term, procurement needs to be looking far further into the future, working on the assumption that global crises and disruption is highly unlikely to abate this year. By doing so, this allows a better understanding of wide-ranging implications of issues, allowing procurement to better protect their business.
Integration of and planning in the end-to-end supply chain provides greater visibility of the impact of global issues on not just Tier 1 and 2 suppliers, but those two or three steps further down the chain. This visibility, in turn, provides the opportunity for procurement to reduce reliance on single or preferred suppliers, investigate alternative sources of supply, and be ahead of the game when crises hit.
A good example of this links back to procurement potentially disappointing its customers to get back on track. Faced with a decision of who to serve – those who shout loudest, or those who are key strategic or growth customers – the opportunity lies in aligning strategic decision making with what is coming next on the long-term horizon, rather than hedging bets or inefficiently working down two lines of strategy at the same time.
It’s a key decision that could define the health of the organisation, and the supply chain, for a long time to come.
Through our series on Procurious we are providing an update on the impact of global crises on supply chains during 2022 and beyond, while showing how organisations can use supply chain integration and planning to be better prepared. If you would like to chat to us in more detail how this could help your organisation, you can get in touch with us on the Oliver Wight website.