Managing Complex Supply Chains Requires a Holistic View of Sourcing and Supplier Diversity
By Tim Harden
Supply chains have evolved rapidly over the past decade, from a static series of distinct functions to a full-blown dynamic web of complex networks that are flexible enough to rapidly respond to changing customer, stakeholder, economic, and environmental demands. The key to managing supply chains in such turbulent times is to have a foundation of supply chain visibility that fuels a complete, holistic focus that drives fast, data-driven decision making.
Here are some key components that will help bring a holistic view of your supply chain into focus.
Full Visibility is a "Must-Have" for Complex Supply Chains
Supply chain visibility can mean different things to different people and organizations. In my view, it is the ability to find in every crack, drawer and cabinet, all of the supplies that you would need to help solve various problems. In my world, that means "How can I find all my parts and components and move them from Point A to Point B when I want to?" That's the essential problem that any supply chain executive is trying to solve, so it's critical to have full visibility into your supply chain so that you can see where all those various components and parts are, and how to optimize their location in order to maximize the ability to create revenue.
The more hands you have that touch the components and parts along the way, the more complex your supply chain becomes. I like to use the wireless industry as an example, given my experience in supply chain and fleet operations at AT&T. When it was time to build several hundred new cell towers, we needed many different components. All of these components had to come together in a tight timeframe. If I had an overabundance of supplies in the Northwest, and the West was short on supplies, I needed to be able to shift supplies to the shortage areas. I could have taken advantage of complete visibility into my supply chain to quickly shift the components from the Northwest to the West if I had had that visibility, which I didn't. Once it left the warehouse and went to the field Turf Vendors that visibility was lost. All of the supplies, including electronic components, had to come together quickly enough so that thousands of towers across the country can be built on time. Without complete visibility, we ended up expediting new supplies to the sites which increased the actual cost of the build.
Shortening the "Capital-in-Progress" Component
To add to the complexity, cell tower construction involves many different vendors along the way. Some of them are services vendors who put the towers and electronics together and then turn the system on and test it. We had to be able to get the right parts in their hands when they needed them in order to test and not lose any time in the process. A tremendous amount of capital was tied up in this project until the towers were complete, and we could start earning revenue against it. This "capital-in-progress" component is something that every CFO watches very, very closely. In order to shorten the capital-in-progress component, you need to be able to have complete visibility and control into each construction and build step, as well as supply component requirements, so that you can shorten the capital-in-progress timeframe and free up the cash tied up in that process as soon as possible.
Successful Supply Chain Management Begins with Support from the Top
In most successful companies, the supply chain is a strategic component of their operation and not just a separate entity within a business group. When the supply chain is leveraged as a critical, strategic tool, supply chain executives are very much involved in the planning processes, both in terms of evaluating the capabilities of the actual vendors who come in as well as the strategic nature of the contracts that are put in place. Often, the CFO gets involved as well, to ensure that it fits into the model of what the business is trying to achieve in a 3 or 5-year business case and budget cycle.
When the supply chain is treated as a critical component of an organization, it's a well-oiled machine. When supply chains are not a strategic component, organizations tend to be very inefficient, and they can't really capture the full value of what supply chains can deliver. As I mentioned, supply chains can be very strategic to a corporation's success. You're able to actually shorten capital-in-progress intervals in order to deliver cash faster when your supply chain is an integrated part of your business, and it plays into the success of any organization going forward. Put another way, supply chains can have a positive influence on what transpires within a company, which is why it should be a key component of the strategic plan for any corporation.
Have Strategies in Place for Both Your Company and Your Suppliers
It's pretty clear that when your supply chain isn't working, it immediately impacts the success of the company. That is why it is crucial to create a set of strategies around how to prevent falling into some of the minefields along the various supply chain delivery paths. You can't just think, "I have a single supplier here that I really like, and I know they're always going to deliver." You also need to be able to say, "What is my strategy if they don't deliver? Do I need a secondary supplier just to keep the first supplier honest and have a second path? If I have two suppliers, are they drawing parts from the same subcomponent supplier?" If that is the case, you need to be able to physically diversify your supplier so that they are not relying on the same subcomponent company.
Keep in mind that suppliers typically operate on very thin margins; any kind of disruptive event can have dire consequences for companies several steps down the chain. The Japan earthquake and tsunami of 2011 brought to light the fragile nature of the global supply chain. In this case, our first supplier was down the street from the secondary supplier, and both were wiped out and unable to recover. That is why it's so important to look at the depth of your supply chains, and your dependencies, and have a strategy in place for ensuring that your supply chain is secured all the way through. The tsunami event really accelerated the number of companies that added suppliers from Mexico and Canada so that they had nearshore capabilities for product completion and delivery.
When working with suppliers, make sure they have secondary and tertiary strategies for their own supply lines to prevent disruptions to your own company, and include that as a contractual element when you initially sit down with your suppliers. Meet with your suppliers on a monthly and quarterly basis to make sure they have a way to shift manufacturing or delivery paths if a disruption occurs. You will need to constantly work with your suppliers to make sure that diversity stays in the delivery path, the assembly path, and the subassembly path, so that you have a very strong overall delivery capability within your supply chain.
There are huge opportunities across many supply chains for something that gives them much more visibility and flexibility than they have today.
Flexibility is key when it comes to managing inventory. Today, you have some flexibility when it comes to managing inventory, but not as much as you need. Fortunately, supply chain visibility platforms can give you much more visibility into your supply chain, which means that you can evolve more towards a just-in-time environment where you can alleviate inventory shortages/overages, balance supply and demand, and shorten up your capital-in-progress timeframe.
About the Author
Tim Harden has strong expertise in all major supply chain functions, including strategic sourcing, purchasing, supplier diversity, supply chain logistics, distribution, and fleet management, stemming from his leadership roles at Pacific Bell, SBC, and AT&T. He is a member of Cloudleaf's Board of Advisors, and is the Chairman Emeritus of the QuEST Forum Executive Board, which manages the worldwide quality standard TL 9000. He was also a former member of Supply Chain 50, which represents a group of the top 50 Fortune 500 Supply Chain professionals from around the world.