In the 1990s and early 2000s, and particularly since China's accession to the World Trade Organization on December 11, 2001, a significant number of companies globalized sourcing and production to reduce costs. In most cases, this meant relying heavily on China, India and other foreign suppliers. According to the Brookings Institution, this measure exposed US companies to an increasing number and variety of risks, including geopolitical unrest, labor conflicts, extreme weather events and cyberattacks. Furthermore, the recent global health crisis has revealed additional vulnerabilities in the supply chain, particularly those caused by dependence on a single country or supplier. In fact, the US Chamber of Commerce notes that many manufacturers are now recognizing that they cannot and should not rely on a single source for every critical need.
But how to deal with this?
1. Maintain diversity
Make sure you have multiple suppliers in your supply chain, both locally and internationally, both primary and backup. It is also important to have a strict list of criteria to follow when selecting them, including delivery times, prices, a thorough quality check and a tour of the facilities. And, since it's best to select a supplier whose strengths align with your company's, whenever possible, good communication is key to understanding how to select one supplier over another. In my experience, slow response time is the biggest telltale sign that a candidate doesn't fit a mold.
2. Communicate effectively with customers
Honest and open communication with customers is key, and the ability to proactively update them requires a strong and experienced support team. One way to stay ahead of the curve is to proactively ask suppliers for updates – this will help you inform customers early in the process if a material will have a longer lead time than expected. If necessary, you can look for alternative options.
3. Include risk management in the process
Risk management can be incorporated into the supply chain process in two ways: a requirement to engage in planning discussions that help minimize fire drill orders and diversifying the supply chain so you don't have all the eggs in the same basket. For example, in the natural products industry, it is best to have two suppliers who are good at protein and two others who are good at softgels. Why? Both are items that can be difficult to obtain competitively.
4. Commit to good data
Train your team, standardize your data structure, and enable your team to add insights into the solutions you implement. However, it is necessary to enforce the established procedures; the only way for anyone to know that mistakes have been made is to face them head on.
5. Build strong relationships with suppliers and manufacturing partners
Good relationships start with trust. Remember that suppliers are your partners, so it is important to take their commitments (e.g. payments) very seriously. In return, expect the same level of commitment from them. Consistent but respectful follow-ups (including scheduled times to talk) help foster this dynamic – this way, vendors will always know when they need to communicate with you.
