This is the second in a series of articles exploring supply chains and their strategic importance as part of the post-COVID response. Our first post considered the shift toward more customer-driven supply chain models, which you can read here.
Modern supply chains have become complex, multi-tiered and increasingly reliant networks. Their dispersed nature makes the need for transparency critical but challenging, particularly in the face of dynamic customer demand and rapid product lifecycles. Yet, while most companies have mature functions that monitor internal performance, many don’t have methods in place to understand their immediate and extended supplier networks.
In the ongoing COVID-19 response, companies have renewed their focus on scenario planning, trying to understand where the next shock might come from and which supply levers can be pulled. However, less attention has been given to understanding how external networks make the supply chain vulnerable. Deloitte's 2020 CPO Survey found that only half of procurement functions have High visibility over Tier 1 suppliers, while 90% rated their extended supply network visibility as Moderate to Very Low.
Broken nodes in the second or third tier can have cascading effects. Deloitte research suggests that for some organisations, third-party risk incidents have at least doubled in the past five years — the recent Suez Canal blockage showed that seemingly isolated problems can bring global supply chains to a halt.
As they emerge into a new normal, organisations will be seeking to gain greater transparency about their suppliers. This goes beyond simply gaining visibility; visibility should then become the catalyst to learn from and address gaps in the supplier network, in order to manage risk and build operational resilience.
Building on existing supplier management practices
Supplier management is a well-established practice. All organisations seek to extract the most out of their commercial relationships and when done well, effective sourcing, negotiation and contract management are all core tools in the procurement kit.
However, added complexity means that supplier management is evolving into a more foundational and strategically critical discipline that mitigates risk, ensures continuity and maximises value. Efforts to deepen supplier relationships and increasing collaboration have both been themes in recent Deloitte CPO surveys, recognising the need to build flexibility into operations. This doesn’t mean organisations must start over or undertake wholesale change - a series of practical steps can help to build assurance through a ‘continuous improvement’ mindset:
De-risk the procurement process
Understand and prioritise the existing supplier base
Measure, report and action as part of BAU
While the points above may sound like added cost that stretches already scarce resources, these levers should be seen as building blocks that complement existing supply chain management.
It will help to take an economic view of the challenge to increase maturity and network performance in the long run. Should there be another shock in the future, a view of the counterfactual is also important – by not taking a proactive approach to transparency, the risk exposure increases for all parties across the supply chain network.
Organisations are reassessing their supply chain risks, and redefining supplier relationships as a result. Whereas in the past, cost has been the primary factor for choosing and managing suppliers, a shift towards a more risk-based equilibrium will build resilience into operations.
I take immense satisfaction from working alongside clients to help them achieve more and be better tomorrow than they are today. From improving service delivery and enhancing the customer experience, through to reducing operating costs. I work with clients to design and implement changes to the way they operate in order to increase enterprise value and to deliver better results. I specialise in strategic cost transformation, sourcing and procurement, and service outsourcing, across both the public and private sectors.