7 Key Actions to Optimise Supply Management in a Crisis
- by Ross McCarthy
- Apr 22, 2020
- 5 min read
All businesses, including the very largest companies, are being tested severely by the COVID-19 crisis. It is global in nature and is, therefore, challenging local, regional and global businesses models. Cash is always king in downturns, especially severe downturns. Therefore, business managers responsible for supplier management and/or procurement should be taking a step back to consider the steps that they can take to best manage risks, cash and critical relationships.
I've outlined below some of the key steps that I believe companies could take in this regard, so as to optimise their supply management processes during this crisis.
Tier your suppliers and creditors by strategic importance
1. Prioritise your supply sources
Prioritise your high-risk supply sources not just by geography, but also by sector / commodity / value to the business. Tier your suppliers and creditors by strategic importance. From the perspective of viability, the tax authorities, insurers, banks, and energy companies form a top tier of critical relationships. After this level, you should also review and tier your suppliers and labour resources by their strategic importance to your supply chain. The risk of exposure of suppliers to the regions most impacted by COVID-19 also needs to be taken into account. This can lead to a variety of potential options for action.
Your mitigating actions may include re-sourcing nearer to the EU
2. Analyse your supply chain
Analyse your supply chain beyond your tier one suppliers to fully understand your exposure to the affected countries and regions. Remember, companies are only as strong as their weakest link in their key suppliers. They are also exposed to their key supplier’s weakest links. Therefore, once businesses have ascertained this level of exposure, they can then make better strategic decisions. For example, for Irish companies, your mitigating actions may include re-sourcing nearer to the EU rather than opting for long-distance sourcing from places like China.
As we all know, there are several factors that can influence such a decision. As such, multi-sourcing may be a good initial step to adopt as a supply management optimisation technique. You could then take the opportunity to test other potential options, thus enabling you to be in a better position should there be a longer-term requirement to shift sourcing.
Reduce any impact from port delays, missed supplier deadlines, etc.
3. Review the business approach to inventory.
Revisiting your inventory management approach is a key step in optimising supply management in crisis situations. Know your new replenishment levels, and make your business decision in light of the new crisis positions.
Different businesses will take different approaches here. Some will either need to, or seek to, stockpile. For example, you may want to now build your inventory around your stores to reduce any impact from port delays, missed supplier deadlines, etc. Furthermore, you'll need to know the additional financial resources that are required to support this supply management optimisation technique, if deemed appropriate.
Others, if they have the cash, may be in a position to take advantage of business closures and secure stocks to replenish their inventories at heavily discounted rates. Finally, some businesses will run off non-core lines or non-strategic lines and liquidate stocks that are not core to essential businesses. This can be used to build stocks in core lines.
Single sourcing is a big risk
4. Don't rely on inventory forecasts
Be extremely prudent about your reliance about forecasted supply data or current inventory levels. In crisis times such as these, stocks and inventories do not exist until they are in the warehouse. A lesson from the emergency sourcing of PPE around the world is that carpetbagging is often an unavoidable feature of crisis sourcing. While current inventories may be accurate, a fall in demand could lead to oversupply and/or promised replenishment orders could be commandeered by any state on route. That is why it is essential that businesses understand how and from where they can source key stocks and materials. Single sourcing is a big risk.
Know the max and min carrying levels that your business can handle
5. Know your supply pinch points.
Calculate your stock tolerance over the predicted “at risk” period to determine your pinch points. Such data analytics are important during this crisis period. It is important to know the max and min carrying levels that your business can handle as this informs the options for stockpiling, right-sizing orders, re-sourcing to more than one supplier etc.
Many businesses will consider offering up a low percentage discount in return for the certainty of cash
6. Talk to your suppliers
Keep the communication channels open with your key suppliers and use digital technology such as teleconferencing to maintain contact. Maintaining contact is essential and should be as regular as possible in the current climate. It is also worth considering enhanced financial certainty provisions in return for stock delivery. For instance, for businesses able to pay on delivery, they should consider doing so and seek a discount. Many businesses will consider offering up a low percentage discount in return for the certainty of cash.
7. Know your ability to honour commitments
As you optimise your supply management approach, you should also factor in any risks arising from your inability to honour commitments, whether those financial commitments are to creditors, suppliers, staff or customers. There are a variety of risks that require balancing, none of which are easy to reconcile. There will not be many businesses that will be able to honour all their commitments in the short and medium term. If unable to do so, you should seek facilities and financial terms that are sympathetic to your business needs. Companies will need to prioritise who they reach arrangements with as this will not be possible with everyone.
Finally, we wish you all the best in your endeavours to keep on trading through this crisis. If you need help in looking for third parties to help you in any way, send us a message via our Contact page to discuss, or you can forge ahead by using our online platform to subscribe and share your requirements. Feel free to also search the list of business opportunities published on our website to see if they are any that suit you and your business.
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