While the pandemic certainly exacerbated global supply chain disruptions in extreme ways, it also offered lessons for business leaders everywhere to learn more about their supply chain management and prepare themselves for future disruptions.
We sat down with professor M. Johnny Rungtusanatham to glean expertise around logistics and supply chain management, what is causing supply chain issues, and to get his top five tips to improve your management of supply chains.
Rungtusanatham is Canada Research Chair in Supply Chain Management at the Schulich School of Business, York University; a 2017 Fellow inductee of the Decision Sciences Institute, and an award-winning researcher and educator. He is considered one of the top 50 authors of operations management research and supply chain management research and one of the top contributors to the field of Operations Management, according to published sources.
What is supply chain management, anyway? According to IBM,
“Supply chain management is the handling of the entire production flow of a good or service — starting from the raw components all the way to delivering the final product to the consumer.”
Without further ado, let’s dig into professor M. Rungtusanatham’s expertise and become well equipped to make better decisions and become better leaders.
5 TIPS TO IMPROVE MANAGEMENT OF SUPPLY CHAINS
With professor M. Johnny Rungtusanatham
TIP 1: USE RIGHT6TM Goal AS YOUR NORTH STAR
Effectively managing a supply chain means aiming for, what I call, the Right6TM goal. This refers to getting your product:
- To the right customer
- In the right quantity
- With the right quality
- At the right time
- In the right location
- At the right price
If, at any time, one of these six criteria is not satisfied, it is an indication that you are not effectively managing your supply chain.
It’s helpful to think of the supply process as interactions between many networks rather than a linear chain, and disruption within the network is a matter of when, not if. It’s inevitable. The goal, then, is to minimize disruptions and the time it takes to recover from a disruption.
Check your decisions against this goal to avoid surprises. Keep in mind that there won’t be a perfect decision that will satisfy all six rights. For example, if you decide to source from someone with a higher quality, you may be paying a higher price.
TIP 2: MAGNIFY VISIBILITY INTO YOUR SUPPLY CHAIN
According to Deloitte, 65% of 500+ procurement leaders from 39 countries only have visibility of their tier 1 suppliers. Meaning, they don’t know who their suppliers really are.
That being said, supply chains today are very complex, long, and have limited visibility. They involve global sourcing activities with multiple hand-offs and transfers.
Figure out how your goods flow—starting from as far up the supply chain as possible all the way down until it reaches you.
Because, let’s be honest, you cannot manage well what you do not see.
To start magnifying your visibility, ask yourself these questions:
- Where do my goods enter or exit Canada?
- How much of my goods are going through one point?
- What are my backup options?
- Who really manufactures my goods? Who are THEIR suppliers?
- How far up supply chains do I interact?
- Where are the hand offs in the supply chains? The more hand offs, the more opportunities for damage, loss, etc.
- Who is responsible for hand off integrity? Me? A third party?
TIP 3: PRIORITIZE YOUR PURCHASES TO PRIORITIZE ASSOCIATED ACTIONS
Classify your purchases, what you source, into the four buckets in the Kraljic Matrix. You don’t have time to focus on or control everything, but you must make time to prioritize the most important. Strategic goods, for example, are of high importance because there is a high risk of supply not being available and they have tremendous impact on whether or not you make money.
Depending on how you classify your goods and purchases, you can determine their inventory placement using the chart above. For strategic goods, for example, you would never consider Inventory Postponement.
Here are some rules of thumb to best manage your different categories of inventory (remember: for any type of consignment, ensure you have a contractual agreement and a high degree of trust with your supplier):
- If you have no financial or physical storage constraints, use inventory speculation. You know you will eventually use these goods.
- If you have financial constraints, but no physical storage constraints, use forward consignment. Ask your supplier to let you hold inventory and pay them once you use the supply.
- If you have physical storage constraints but no financial constraints, use reverse consignment. Your supplier holds on to the inventory on your behalf, but you own it.
- If you have physical storage and financial constraints, use inventory postponement. This is a good option for non-critical goods (easily available and have little impact on whether or not you make money)—you don’t have to stockpile, just place an order when you know when and what you need.
TIP 4: DIVERSIFY TO REDUCE SUPPLY MANAGEMENT RISK
While supply chains today produce complex products, they also involve fewer suppliers due to supply base rationalization. The number of critical nodes in your supply chain is reduced, which also reduces your power over your suppliers and increases your vulnerability to disruption because there are fewer nodes.
Because of this, you don’t want to put all your eggs in one basket (or buy all your supplies from one country!).
Instead, establish near-far options with proper risk-based allocation. Leverage most of your supply with volume-based pricing from a supplier far away, and a smaller portion from a nearer supplier. This way, if there is a disruption (from afar), you can continue to work. While it might be at a slower rate, you won’t be forced to shut down.
If you must single source from far away, ensure you have someone there who works for you to keep an eye out.
TIP 5: INVEST IN “ADDAPT” CAPABILITIES
- ANTICIPATE – Your ability to systematically remember known triggers, foresee unknown-but-knowable triggers, and imagine why and how they could cause supply disruptions. Think about investing in a person or team who can give you this information and read the news to find out what is happening near and far that could impact you.
- DIAGNOSE – You cannot solve a problem unless you know exactly what is going on. This refers to your ability to wholistically understand a supply disruption in terms of:
- The risks that would cause flows of goods to be interrupted
- The nature of the interruption
- The options available to restore the flow of goods to the expected level as quickly as possible
- DETECT – Your ability to recognize and be warned at (ideally) the exact instance when a supply disruption trigger interrupts the physical flow of goods.
- TRACK – Your ability to monitor the right information, update it, and elevate it to the right decision makers to ensure you supply chains are humming along.
- PROTECT – Your ability to prevent supply disruptions triggered by known and unknown-but-knowable risks. How are you redesigning the supply chain to ensure it’s not vulnerable to the same event that occurred in the past?
For more information about these capabilities and what leaders can do to develop and nurture them, click here.
Thank you, professor M. Johnny Rungtusanatham, for enlightening us on all things supply chain management. You can watch his full supply chain webinar here.
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