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6 tips for more sup­ply secu­ri­ty:

How to make your resource pro­cure­ment crisis-proof 

26.01.2022   |   Hannes Bolting

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The cur­rent short­age of raw mate­ri­als has bumped many man­u­fac­tur­ing com­pa­nies off. There has nev­er been a com­pa­ra­ble cri­sis before, so hard­ly any orga­ni­za­tion was pre­pared for it. How­ev­er, stick­ing your head in the sand will not help. Pro­cure­ment experts should regard the cur­rent sit­u­a­tion as a wake-up call and increase their sup­ply secu­ri­ty for the future. The fol­low­ing six tips for more cri­sis-proof resource pro­cure­ment will help you to do this.

1. Allow more flex­i­ble mate­r­i­al selec­tion in design

In some man­u­fac­tur­ing com­pa­nies, design is con­strained in mate­r­i­al selec­tion. It has only a small num­ber of approved mate­ri­als avail­able, which are often very spe­cif­ic. In most cas­es, these are spe­cif­ic items from indi­vid­ual man­u­fac­tur­ers with indi­vid­ual prod­uct codes. This approach is nor­mal­ly very effi­cient because it min­i­mizes the nec­es­sary approval process­es. Once the mate­ri­als have been approved, the design depart­ment can install them again and again with­out hav­ing to con­sult them. In addi­tion, pro­cure­ment can real­ize economies of scale by pur­chas­ing larg­er quan­ti­ties of spe­cif­ic products.

In times of cri­sis, how­ev­er, this lack of flex­i­bil­i­ty becomes a seri­ous dis­ad­van­tage. If an approved mate­r­i­al is not avail­able, the design depart­ment can­not sim­ply switch to an equiv­a­lent. Instead, it has to apply for a new release, which leads to delays.

To avoid this prob­lem, give your design­ers as much lee­way as pos­si­ble in mate­r­i­al selec­tion. Be as gen­er­al as pos­si­ble and as spe­cif­ic as nec­es­sary. Do not rule out options that you can fall back on in the event of a crisis.

2. Cre­ate redun­dan­cies in the sup­pli­er network

A lean sup­pli­er net­work cer­tain­ly has advan­tages. It’s easy to main­tain and enables clos­er rela­tion­ships with sup­pli­ers, which trans­lates into greater trans­paren­cy and advan­tages in price nego­ti­a­tions. How­ev­er, it also car­ries risks, espe­cial­ly in extreme cases.

For exam­ple, if a com­pa­ny has only one sup­pli­er for each mate­r­i­al, it cre­ates a num­ber of sin­gle points of fail­ure. If the sup­pli­er can­not deliv­er, the sup­ply of mate­ri­als comes to a stand­still. The result is delays in production.

It is bet­ter to ensure that you have redun­dan­cies in your sup­pli­er net­work. For each mate­r­i­al, you should have at least one sec­ond-source sup­pli­er on hand so that you can switch in an emer­gency. Alter­na­tive­ly, you can select sup­pli­ers who have a robust sup­pli­er net­work them­selves and can call in a part­ner in the event of sup­ply difficulties.

3. Strength­en forecast

Infor­ma­tion about expect­ed mate­r­i­al require­ments is an impor­tant pre­req­ui­site for robust resource pro­cure­ment. The more trans­par­ent you make your sales plan­ning, the eas­i­er it will be for them to order appro­pri­ate quan­ti­ties from your suppliers.

Also keep in mind that your sup­pli­ers are part of a larg­er sup­ply chain and will need to pro­cure resources them­selves to ser­vice your orders. If you order as ear­ly as pos­si­ble and for­mu­late your spec­i­fi­ca­tions pre­cise­ly, you can sig­nif­i­cant­ly reduce the risk of dis­rup­tions or errors.

You gain trans­paren­cy regard­ing resource require­ments by strength­en­ing your fore­cast. Cre­ate the nec­es­sary process­es ear­ly on and invest in soft­ware and per­son­nel. This will make life eas­i­er for you and your suppliers.

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4. Rely on local suppliers

In the con­text of glob­al­iza­tion, it is com­mon prac­tice in most indus­tries to pro­cure resources pri­mar­i­ly from inter­na­tion­al sup­pli­ers. The rea­son for this pro­cure­ment strat­e­gy is the price advan­tage that sup­pli­ers from low-wage coun­tries have over local com­peti­tors. But price is not every­thing. Trans­port­ing goods and raw mate­ri­als halfway around the world car­ries a high risk of dis­rup­tion, because of the dis­tance trav­eled. Ship­ments pass through numer­ous trans­ship­ment points and choke­points on their way from South­east Asia to Europe, all of which offer some poten­tial for delays. An exam­ple of this is the Suez Canal block­ade in March 2021, which impact­ed a sig­nif­i­cant por­tion of the glob­al move­ment of goods.

Instead of meet­ing all of your resource needs through glob­al sup­pli­ers, con­sid­er adding more local sup­pli­ers to your net­work. These fea­ture short trans­porta­tion and com­mu­ni­ca­tion paths, so there is less poten­tial for dis­rup­tion and prob­lems can be sort­ed out more quickly.

5. Build up a mean­ing­ful sup­pli­er database.

Pro­cure­ment is not an iso­lat­ed process that applies only to your own com­pa­ny. Every orga­ni­za­tion is part of a sup­ply chain that extends from the extrac­tion of raw mate­ri­als to the pro­duc­tion of goods. Any dis­rup­tion along this chain also impacts sub­se­quent steps in the val­ue cre­ation process. There­fore, a robust pro­cure­ment strat­e­gy should always include sup­pli­ers and upstream suppliers.

This requires a sol­id infor­ma­tion base. You should know where your sup­pli­ers obtain resources from and how their pro­cure­ment process­es are struc­tured. To this end, it is advis­able to cre­ate a well-main­tained sup­pli­er data­base that con­tains all the impor­tant infor­ma­tion. A data­base like this gives you the oppor­tu­ni­ty to per­form a com­plete risk analy­sis that includes your entire sup­ply chain.

6. Rethink your ware­hous­ing strategy

As part of the just-in-time approach, many man­u­fac­tur­ing com­pa­nies have moved to reduce their inven­to­ry lev­els and instead rely on demand-syn­chro­nized deliv­er­ies of goods. This strat­e­gy is high­ly effi­cient because it makes tra­di­tion­al ware­hous­ing large­ly obso­lete. How­ev­er, it is also high­ly vul­ner­a­ble to dis­rup­tive events. If a dis­rup­tion or delay occurs in pro­cure­ment, it has an imme­di­ate impact on pro­duc­tion process­es because there are no rel­e­vant safe­ty buffers.

As a pre­ven­tive coun­ter­mea­sure, it is advis­able to rethink inven­to­ry strate­gies and place more empha­sis on a sta­ble sup­ply of resources. Increase your safe­ty stocks so that your pro­duc­tion can tem­porar­i­ly com­pen­sate for sup­ply short­falls. Adjust­ing lot sizes is also advis­able. Refrain from order­ing demand-based mate­r­i­al quan­ti­ties at short inter­vals. This strat­e­gy is too prone to dis­rup­tion. If pos­si­ble, place larg­er orders and stock­pile some of the material.

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Con­clu­sion

The mea­sures pre­sent­ed seem coun­ter­in­tu­itive at first. After all, they run counter to com­mon sup­ply chain man­age­ment best prac­tices: price ori­en­ta­tion, min­i­miz­ing inven­to­ry costs, just-in-time deliv­ery, etc. How­ev­er, keep in mind that these best prac­tices are the result of an ongo­ing opti­miza­tion process that has gone on for decades with­out major dis­rup­tion. Today’s sup­ply chain man­age­ment is designed to oper­ate as effi­cient­ly as pos­si­ble under opti­mal con­di­tions. How­ev­er, when seri­ous dis­rup­tions occur, the resilience to respond appro­pri­ate­ly is lacking.

The Coro­na pan­dem­ic demon­strat­ed the impor­tance of robust sourc­ing strate­gies. It is like­ly that sim­i­lar crises may occur in the future. In view of this, it is worth accept­ing minor effi­cien­cy loss­es in sup­ply chain man­age­ment in order to sig­nif­i­cant­ly increase resilience in return.

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Autor: Hannes Bolting

Hannes Bolt­ing has been work­ing in sales at Jäger since 2018. At the same time, the trained indus­tri­al clerk is com­plet­ing a master’s degree with a focus on sales man­age­ment at the FOM Hochschule für Ökonomie & Man­age­ment in Hanover.

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