Supplier Nightmares? Don’t Panic – Plan for Tomorrow.

October 14, 2021
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Tom Gordon, CPIM-F

Two questions are fighting each other in the nightmares of supply management: – “When will this craziness end? and “How can we prepare for the change?”

There is a fact that must be faced – the old ‘normality’ will not be the new ‘normal’. 

There are some very good reasons for this.  A major reason is the growing instability in the Chinese relationship.  President Xi Jinping is determined to cement his regime into Chinese history books.  “Xi Jinping Thought” is the guiding principle – [1] and the determination to reunify Taiwan will, effectively, destroy any degree of co-operation with the western supply chain.  [2]  Recent studies in the total cost of ownership have revealed the fact that it is not cheaper to import. [3]

Another reason is the decline of manufacturing in the USA; people think that a ‘service economy’ is the final stage in evolution and that manufacturing can be sent offshore.  The wisdom of Oliver Wight must be applied to this mode of thought.  Ollie stated that when the manufacturing base leaves town, the people who clean swimming pools and run dry cleaning shops will not have a lot to do!   The message is to protect and expand domestic manufacturing; the strategic goal should be the support of supply chain autarky.

So, the question is “How can we prepare for the changed environment?”  There are strategic, tactical and operational measures that can prepare the manufacturing organization for tomorrow.

Strategic.  A strategic decision should be made to ensure that onshoring trumps any short-term gains by sourcing offshore.  In actual fact, the short-term gains will prove to be an illusion with the disruption of the global supply chain.  This strategic decision should be supported by two cross-functional planning teams – “Murphy” Team 1, planning for disaster; “Murphy” Team 2, planning for outstanding success.  Strategically, supply chain is not the single purview of “Purchasing”; a wide range of inputs into both teams will mediate failure and enhance success.  Numbers go up and numbers go down, that is life and that prevents any form of deterministic forecasting from being a reliable tool; that is the reason for the wide experience necessary in the Murphy Teams. [4]

A significant part of the future business model is to ensure that not only does your organization buy domestically but that domestic buyers purchase their products from you!  To ‘convert’ an overseas buyer to a domestic buyer there are a number of steps that must be part of the organizational strategy:

  • Reputation.  Over the past few years there have been several organizations have suffered from the consequences of a poor reputation.  Corporate Social Responsibility is an area often neglected at the strategi level – to the detriment of the organization.
  • Delivery – on time, on price, on quantity and on quality.  The APICS [ASCM] concept of the “Perfect Order” is a guide to achieving these goals.
  • Confidence in the future.  Business Continuity Management and Disaster Recovery are essential sea-marks in creating confidence in future relationships.
    • Supported by internationally recognized certifications such as the ISO series f standards.

Tactical.  The overwhelming tactical approach should be partnership with the suppliers.  An important initial step should be the resolution to eliminate the AP/AR cascade; timely payment of invoices will eliminate ‘just in case’ costs in the supply chain and engender an atmosphere of trust and partnership. 

Time Fence discipline, coupled with a realistic Master Production Schedule and a stochastic approach to forecasting, will mitigate much of the uncertainty in the supply chain.  The MEP CONNEX database – free if your organization signs up by my birthday [5] – provides access to thousands of potential suppliers and Customers. [6]  An important emerging tool is the concept of the ‘Supply Chain Tower’. The Supply Chain Tower utilizes data technology to provide ‘end-to-end’ visibility of the supply chain.  

If your organization must import then consider C-TPAT Certification.[7] C-TPAT will help protect your supply chain against disruptions caused by terrorism.

Operational.  There are many steps that should be taken at the operational level but the most important is to ensure accurate data – Bills of Material, Inventory and critical capacity.  Without this level of certainty, no organization can know exactly where they are situated.  Incorrect data will lead to panic buying, which will bring the whole edifice tumbling down and lumber the organization with excess, and expensive, inventory, once the situation settles down.  The ‘Toilet Role’ fiasco is a timely example! 

The message to be read from this current situation is that the only permanent thing is change. [8]

The timely verse from Rudyard Kipling’s poem “If”

              “If you can keep your head

              When all about you are losing theirs”

Of course, the cynic may amend these lines to read, “If you can keep your head, when all about you are losing theirs then you don’t understand the problem!”

The moral is that the situation cannot be ignored and ‘hope it will go away’; the ostrich in the sand approach never works! The sensible executive, with an eye to sustainability, will take command and steer the business ship into calmer [and shallower, local] waters.

[1] “China’s new reality”, The Economist, 10/2/2021

[2] The myth of ‘One Country, Two Systems’ has been proven to be false by the conflicts in Hong Kong.

[3] A topical example is “Tonka Mighty Dump Trucks”, transportation costs to get them shipped to the USA is now 40% of the retail price.  That does not include the cost of transporting the product from the U.S. port to retailers.  Source: St Louis Post Dispatch, 10/10/2021.

[4] Murphy’s law is an adage or epigram that is typically stated as: “Anything that can go wrong will go wrong.”

[5] 10/30/2021

[6] For more information, contact Jeff Wilkens at Missouri Enterprise

[7] Customs – Trade Partnership Against Terrorism

[8] Immanuel Kant