Last Wednesday we took part in the BME Executive Roundtable and discussed the current supply chain crisis. As most of the procurement experts believe that we won’t go back to a pre-pandemic normal – we need to find new ways to adapt to the „new normal“.
We believe there are several ways to deal with problems, such as container shortages, rising logistic costs, semiconductor shortages, power restrictions and travel restrictions – some of the takeaways we would like to share with you:
1. Building a flexible supply chain
The supply chain flexibility is defined as the speed in which the supply chain responds to changes in demand and the business environment; to either create or preserve competitive advantages.
Ways to improve the supply chain flexibility:
- Institutionalising partnerships with suppliers and subcontractors to “strenghten the chain” while dealing with fluctuations and changes in demand
- Transferring operations to external sources, i.e., outsourcing (using subcontractors to respond to changes in demand)
- Building tools and capabilities to quickly identify changes in demand, i.e. Digital Asset Management System or Artificial Intelligence Management System.
- Building means of dealing with variable demand and supply chain efficiency (i.e. training of employees, building manufacturing capacity in a few establishments, setting up agreements with suppliers, subcontractors, etc.)
- Implementing of organisational structure and work support processes
- Using multiple logistics methods, such as rail, road, air- and sea-freight etc.
2. Adjust procurement and supply chain strategies
Companies need to adjust their procurement strategies, re-evaluate procurement costs, and move from the initial centralised procurement to a procurement model that coexists with centralised and advance procurement.
For example, due to electricity rationing in China, orders from many factories have been delayed and production costs have increased. In response, the procurement strategy should be adjusted and alternative suppliers should be selected for centralised procurement. In this way, sufficient inventory can continue to be ensured and the effects of power rationing can be reduced.
3. Digital Supply Chain Management
Enterprises should promote the digitalisation of supply chain, form a complete supply chain monitoring system, and create a response plan to deal with unexpected events – this will help make the entire supply chain visible and traceable. Buyers and suppliers should maintain constant exchange to improve the integrity and transparency of information in the supply chain.
4. Set safety stock
Enterprises need to reset the safety stock under the premise of considering the balance of supply and demand – this will guarantee the supply chain stability for a certain period even in the case of unexpected events.
5. Adapting to the new normal
- Communication is key! Organise online meetings to communicate and improve team cohesiveness actively and effectively
- Procurement diversification
- Usage of new business opportunities, e.g., New Belt & Road Initiative, SEPP etc. (Due to the travel restrictions, our services can help you to find suitable suppliers and audit suppliers).
- Prioritise Business Relationship Management