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Executive Council

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Can supplier collaboration mitigate the risks of the post-pandemic global supply chain crisis?

By Das Dasgupta|

In the pre-pandemic supply chain environment, it wasn’t unusual for multiple suppliers to be very competitive across price, quantity, timeliness, or service level. As a result of the pandemic-driven supply chain disruptions and resulting uncertainty, more companies realize that extending visibility to their competing suppliers provides a collaborative opportunity to build healthy competition while increasing on-time, in-full rates, which results in better order fulfillment for all parties involved.

The concept isn’t entirely new. Automotive manufacturers like Toyota were successful in creating a rigorous supplier onboarding process while creating an environment for continuous improvement with detailed scorecards based on technical specs. While this is seen as tough love, the idea is to keep competition driving excellence. As such, a single supplier is encouraged to help create and foster competition as well.

For example, when Toyota had a single source part supplier, they would leverage their connections to secure another supplier in a separate region and establish an end-user license agreement (EULA) in which each supplier would receive a percentage of Toyota’s business. This method spurred quality improvements, increased reliability, and improved delivery outcomes (on time and in full). This also allowed Toyota to set specific standards, like Lean Six Sigma, for suppliers to meet, create greater transparency among suppliers and improve their supply chain commitments and fulfillment.

If your company wants to foster greater supplier collaboration and promote a sense of healthy competition, here are four benefits this approach can provide in a volatile supply chain environment.

Gain visibility into your upstream and downstream

According to the supply chain operations reference model (SCOR), every company should be aware of at least two upstream and two downstream suppliers for greater visibility and planning purposes. For example, a semiconductor chip manufacturer could be about four degrees separated from the end user, a smartphone customer. But if the chip manufacturer had visibility into how the end user is buying handsets in the carrier’s retail stores, then the chipmaker can have better insights into their demand forecast planning so that they can deliver high-quality goods on time and in full.

Additionally, if the chip maker can gain visibility into their upstream suppliers, who also have visibility into raw materials like silica, they would be able to project how many chips they could produce based on their silica supply. This is a best practice that can be applied across many industries.

Help smaller suppliers get the financing they need

Supply chain finance is another area where collaboration and visibility can lead to great results. Greater supply chain visibility among suppliers can help smaller suppliers gain the financial foothold they need to grow their business. For example, shoe manufacturers partner with banks, who in turn provide loans to the shoe manufacturer’s smaller suppliers that may need to procure materials to fulfill orders. The shoe manufacturer would confirm their list of partnered suppliers to the bank so that smaller suppliers can secure a loan to procure materials (which can be paid back once the product is delivered to the shoe manufacturer).

Supplementing vendor-managed inventory with supplier-managed inventory

Whereas vendor-managed inventory (VMI) is an established area to meet a high fulfillment rate with your customers, consider extending this upstream to your suppliers. If you share data upstream, your suppliers can determine how much you plan and sell, which allows them to plan their own supply chain, manufacturing, and shipment planning accordingly. This level of visibility can help suppliers streamline their production schedules and ship an accurate number of products to reduce waste and access costs.

Understanding macroeconomic variables

Improved supplier visibility can also benefit from an understanding of the macroeconomic factors that influence the entire global supply chain. This can range from the cost of living fluctuations, instant visibility to the impact of major disruptions, increased gas prices impacting in-store retail sales, all the way through inflation influencing the Consumer Confidence Index.

Additionally, extreme weather or political turmoil affecting one region can have a ripple effect worldwide if the availability of certain materials is affected. 

To mitigate these types of scenarios, companies need to build out their supply network in alternate locations so they can pivot production as needed. More companies are moving their supplier and manufacturing locations from mainland China to other countries like Vietnam and Malaysia, and Indonesia. In doing so, they are hedging their bets by sourcing materials and labor across multiple countries. There is also an opportunity for supplier collaboration through suppliers sharing pertinent data. For example, if a supplier experienced an earthquake in their region and says their plant might not be operational for the next seven days, and that information is available immediately, other suppliers can ramp up production if they have excess capacity. However, such visibility can benefit from advanced machine learning models and artificial intelligence. Investing in such technologies early and at scale would be wise for companies.

In summary, businesses that create stronger supplier relationships and collaboration efforts by sourcing through multiple suppliers within their supply chain can create an environment that fosters healthy competition, spurs collaborative planning, forecasting, and replenishment across multiple layers and locations within the supply chain, and helps companies mitigate post-pandemic uncertainties by creating a more resilient supply chain.

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About Das Dasgupta

Das is leading Advanced Analytics, Data Operations, and Digital Advertising portfolios for one of the top global advertising agencies, Saatchi & Saatchi. Das is an active member of the Harvard Business Review Advisory Council and is associated with the Communications Futures Program at MIT. Das holds a dual PhD in Management Science and Operations Research from Penn State University.

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