Vigor

Rodrigo Barbosa

Supply Chain Resilience Champion

Strategy Begins with Spend

Strategic sourcing is a methodology that helps you to have a holistic view of your spend, to give it structure and putting together all the pieces of the puzzle.

Through its six steps, it helps you to have a clear view of your current situation, understand the market where you are playing and all its external forces, understand the internal need of your business for that specific spend, and consequently, clarify the direction you have to go to deliver your business needs. It will also help you to clarify how to do it, by understanding internal constraints, external challenges and how all those effects interact with each other.

Many tools can be applied for those analysis, such as the five forces of Porter, SWOT, Kraljic, market and supplier categorization, among others, so that you will be well equipped to build your strategy. It’s importance to mention that, for different categories, your business might expect different things. For some, it might be innovation, disruptive technologies with narrow partnership, for others, it might be the best cost in the market with more transactional relationship, or maybe cost transparency and predictability, a strong and resilient supply chain, or simply good service and quality level. That’s the kind of answers we are supposed to give with a good strategic sourcing study.

When it comes to more resilient and adaptable supply chain, it’s important to understand how big is the market you are playing, and how relevant is your spend in it. How many supplier options you have in the market, to which ones you are a potential important client and how complex it would be for you to have them qualified and ready to supply your business.

Also, what other options do you have, beyond suppliers, to build adaptable supply chains? Can you reformulate your products to have recipe flexibility? Can you eliminate some rawmaterials without impacting your costumer perception? Can you buy local, or maybe have local storage or use local distributors for small volumes? Should you agree a level of stock with your suppliers or maybe go upstream for your Tier 2 suppliers? Those are some tools you can use to build your sourcing strategy for a more adaptable supply chain.

Risk Visibility Drives Prioritization

It starts by having a good map of your vulnerabilities.

  When it comes to more resilient and adaptable supply chain, it’s important to understand how big is the market you are playing, and how relevant is your spend in it.  

That means, knowing which suppliers have a good or bad service and quality level, their financial health, their location, lead-time, and being aware of possible geopolitical tensions involving that particular market. Second, knowing what is the size of the impact in your sales if you run out of that material and what is your time of reaction, including supplier qualification process, material lead-time, days of stock, etc. All that will help to map the likelihood of the risk with the size of the impact, so you can plot it in a prioritization matrix to take the best decision. Be conscious that, we will likely never be in a perfectly safe and 100 percent resilient environment and any action plan such as new supplier qualifications, product reformulation, increasing local stocks, etc., will require resources, time and Investments, that will be competing with other type of projects. That’s Where the prioritization matrix will help to build a compelling strategy, defining what is really critical for the business.

Resilience Isn’t Just More Suppliers

The more you can use on market standard raw-materials, the more options you will find for your sourcing and less complex it will be to qualify them.

But it’s importance to understand the categories where you want to have plenty of options to move volume across suppliers as you wish, and those categories, Where you want to have maybe 2 or 3 maximum, so you can narrow the relationship, develop innovation, long-term strategies, including back-up plants qualified, increase stock at the supplier, as a Kanban, or a consignment stock level at your own facilities. In some cases, you might choose to have formula flexibility or even eliminate some raw-material, consequently, stop buying from a specific supplier, and that’s also a resilience action plan. Not all resilience strategy is build based on having the highest number of suppliers.

AI Shortens Risk Mapping

AI for sure will help us organize big amounts of data, that today takes months to put together. That can help both with internal data to map our vulnerabilities, and with external data, bringing in real time fresh News about political tensions, changes in regulations, or financial health of companies. Blockchain is also a technology that will help us to map the supply chain up to Tier 2 and Tier 3 suppliers, understand how they relate to each other, speed-up qualification processes and give alerts of possible disruptions and Options for risk mitigation.

Wisdom from Experience

Be aware there is no silver bullet in a constant changing world to build an agile and resilient supply chain. This is usually built through a combination of action plans as mentioned above and require constant revisiting and updates. While you will probably never be free of surprises, dedicating time and effort to map and work on what is really critical, can really prevent major unexpected problems.