Nowhere is the saying “an ounce of prevention is worth a pound of cure” truer than in procurement planning. Once a supply chain is broken, it can take months to put the links back together.
Consider what happened when Bosch, an international auto parts supplier, ran unexpectedly low on steering gears. BMW was forced to slow or stop production of its 1-series, 2-series, 3-series, and 4-series cars for months.
Even bottlenecks in indirect supply lines can cause headaches. Ready for a hiring surge? Not if you can’t get enough desks. Have a company cafeteria? If cleaning supplies don’t show up, closing it could cost thousands in food waste.
Keeping the Chain Strong
Before your product, people, or pocketbook suffer from a supply chain issue, be proactive:
1. Develop a procurement strategy.
Preventing supply disruptions is mostly about having an effective procurement plan. For each spending category, ask yourself: Is getting the best price, maximizing quality, reducing risk, or saving time most important? Boutique suppliers might build the best product, but they can be expensive and may not be on firm business footing. Amazon might deliver your products quickly and at a good price — but you might struggle to build the sort of personal relationship that encourages vendors to go the extra mile.
If in doubt, consult a group purchasing organization. GPOs work with thousands of major suppliers, making them a smart way to reduce vendor risks. And because they leverage the collective buying power of thousands of businesses, they can provide pricing that can’t be obtained individually. Beware, though, that GPOs rarely work with local suppliers. That organic soap your employees love may not be available beyond your grocery store.
2. Have a backup for key supplies.
Another benefit of GPOs is that they, almost without exception, have backup vendors. For example, while you don’t necessarily need a backup for something like staplers specifically, you should have one for office supply essentials. To make room for new relationships, first cull your list. Walmart may be able to manage more than 100,000 vendor relationships, but even a dozen or two can overwhelm a small team.
Think about your non-negotiables. You can’t risk running out of paper if you’re a print shop. Ask industry peers where they buy theirs, and choose a secondary supplier. If you spot duplicates where you don’t need them, cut whichever vendor is more difficult to manage. Is one less reliable or less communicative than the other?
3. Buy in bulk.
You don’t just get a better price when you buy Costco’s largest pack of toilet paper. Assuming you can fit it all in your bathroom, you reduce how frequently you run out. And by purchasing less frequently, you reduce the chance that you’ll need to re-up when the shelves are empty. Your business supplies work the same way. Don’t eat into your bulk discount by springing for a storage unit, but do buy what you can readily store. That way, you give yourself as much runway as possible if you find out your supplier is backed up or out of business. Bulk sellers like Boxed and Zazzle tend to throw in extras, such as dedicated account managers and free shipping at higher order volumes.
4. Over-communicate.
For all of the digital supply chain management software on the market, the best tool you have to avoid supply chain snags is your phone. If you’re an e-commerce company that hires temporary workers around the holidays, for instance, pick up the phone around September to tell your suppliers what to expect. Then, call them back in early January to thank them and say that you see a slowdown ahead.
Ask, too, about their expectations and policies. Would they prefer a standing call? Is there someone on the team you can text? Would they give you a discount if you could pay with cash or check? The easier you can make your suppliers’ lives, the more they’ll want to help you out when disaster strikes.
Building a procurement strategy, culling vendors, and communicating with points of contact takes time, to be sure. But however long those things take, they won’t add up to the amount wasted by a supply chain disruption. Don’t risk it: “Pounds of cure” don’t come cheap.
5. Risk Management
The last thing you want is for your business’s reputation, operations, or finances to fall apart due to a third-party vendor. Supply chain or supplier risk management is essential to preventing (or reducing the negative outcome) common problems before they arise. Your risk management strategy should include financial, ethical, environmental, economic, political, and cybersecurity factors. Implementing supplier risk management software solutions can streamline the process of identifying, assessing, and mitigating these diverse risks, providing a comprehensive overview of your vendor landscape. Working with an expert in third-party risk management is the most effective way to ensure you catch problems before they get worse.
