These are unprecedented times due to the COVID-19 pandemic, which has caused the global economy to slow down immensely. The impact of uncertainty and mandated non-essential business shutdowns has taken a heavy toll on organizations throughout Houston and, more broadly, Texas.
In some cases, public company valuations have dropped by as much as a third. It may be a while before the local and national economies return to normal. Even in the face of these challenges, organizations have a great opportunity to rethink some of their business functions including their supply chains.
Consider these three things to ensure agility, resiliency, and stronger supplier and customer relationships.
1. Get even closer to customers, understand how their preferences are morphing.
2. Look at the entirety of your supply chain, not just your primary suppliers, but secondary and tertiary as well.
3. Strengthen technology and use of dashboards to monitor potential disruption.
Understanding the customers and suppliers
The shocks to both supply and demand have imposed tremendous uncertainty on supply chains — the effect is costly. There are many ways to minimize the effect and one of the ways is to think beyond what your immediate customer wants. Your customers’ business objectives can be better achieved by focusing on and satisfying the needs of the final customer.
Similarly, think beyond your suppliers. Ask what and from whom do your suppliers source their materials to meet your demand? Is your supplier’s production threatened due to their suppliers? How could a geopolitical risk, a natural disaster, or a pandemic effect your supplier and their suppliers?
To answer these questions your organizations must embrace the extended supply chain. It’s really about assessing your supply chain vulnerability. Does your organization need to move things regionally, nearshore, onshore? What is the best strategy to minimize impact to your business during a crisis?
It may seem like a daunting task for an organization to invest in, however, by thinking big and starting small there is a tremendous benefit in understanding and owning the extended supply.
But why is it so difficult?
The old playbook between supply chain partners is generally focused internally, it works toward disparate objectives resulting in differing goals. Since the goals are not fully aligned between the supply chain partners, it can lead to sub-optimal results. In other words, everyone piece of the supply chain needs to be on the same page to understand how one element impacts the other.
Today given the market volatility, it is becoming increasingly evident that a new playbook needs to be written on the buyer-supplier relationship. Building strong partnerships is a journey that mandates behavioral and strategic change. Buyers and suppliers need to have a shared vision of the future. For the vision to become reality, both parties must show vulnerability, cooperation, and focus.
These activities are a necessity and should be considered critical for the business. Utilize known techniques to identify your critical supply chain partners. Leverage analytics and visualization tools to identify opportunities and risks with your strategic suppliers and their suppliers. This extended supply chain will help your organization create early mitigation plans and minimize supply disruptions to the end customer.
Now is the time to act
Given the current state of uncertainty, organizations have a great opportunity to rethink their current supply chain operating models. Any new model must be that of the extended supply chain where customers and suppliers are thought of as partners. This change in mindset is not just to address today’s obstacles but also future uncertainties. Organizations should look to establish trusted supply chain relationships where buyers and suppliers act as one. This change in the behavior of working together to manage unpredictable markets is no longer desired but a necessity. If buyers and their suppliers stay ready together, they’ll be ahead of the game when sudden business disruptions occur.
Jason Jordan is an advisory principal with KPMG in Houston.