Sourcing Specialist, Berlin KraftWorks Inc.
Supply Chain professionals should continually evaluate and push to understand the multiple layers of their supply chains. Not only is it a matter of due diligence and very relevant for day to day operations, it can produce tangible benefits in the forms of risk mitigation, technical engagement, and building a socially responsible supply chain.
Through the start of a new calendar year when organizations reflect and refresh goals and metrics – strategy moves to the forefront. Within supply chain teams, it is a time for brainstorming ideas, charting direction and evaluating supply chain objectives. This time often results in discussion around deepening the understanding of the complex and multiple layers of supplier partners supporting the organization’s goals.
Supply chain teams operating with a systems-thinking approach will often strive to connect with and understand the supply web extending out of their facility, engaging further, pulling additional information and proactively reaching out to establish connections and make introductions to their supplier’s suppliers. These initial engagements will lead to discovery of a supply chain that reached much further than previously known, both in layers of suppliers, and geographical distance. It also allows the Supply Chain team to view supply issues through a different lens with much more context, and to ask more informed questions of tier 1 suppliers when working to solve a problem.
Understanding the Multiple Layers of Your Supply Chain
As COVID-19 circulated the globe and supply chains started feeling the effects with extended closures of Asian businesses, and then European companies before spreading across North America, understanding multiple layers of the supply chain has become paramount. Business continuity is hinging on the ability of the supply chain to continue to support ongoing operations, and now has company-wide visibility up to the C-level. Supply chain teams that understand the tiers of suppliers and maintain relationships with critical lower tier suppliers will have an advantage in terms of faster communications, and the ability to develop mitigation plans and responses ahead of those who do not. This is starkly visible during the current pandemic but often fades to the background during normal operations – and is equally applicable during regional weather events, or instances of political or labour unrest.
It must be noted that the development of these relationships does not happen quickly or easily. Often tier 1 suppliers are reluctant to divulge their own supply base, and especially to provide contacts or access to these key resources. Supply chain professionals must build an environment of trust and be clear on intentions or requirements for mapping the supply chain. Initial discussions or visits can be held between all three parties to ease any tensions.
A further benefit when engaging critical sub-tier suppliers is the potential input and impact to designs, and the ability to release new designs faster. For instance, when dealing with electronic contract manufacturers, if a direct relationship exists with the printed circuit board supplier, design choices, reviews and feedback can be done much faster than working through the contract manufacturer as the conduit for communications. This could save days in a design cycle, and weeks over a new product development. It also fosters trust between all parties’ engineering teams, and can lead to the discoveries or introduction of new materials or processes. A similar approach is also true in the design of plastic or metal components, working directly with potential third-party suppliers such as tooling manufacturers or coating providers.
Creating a Socially Responsible Supply Chain
By understanding multiple layers of the supply chain, teams can build and employ a socially responsible approach when selecting and working with supply partners. The approach to review supplier networks for socially responsible reasons is a relatively recent development which has gained momentum after the passage of the Dodd-Frank Act in 2010, and its implementation in 2012, which requires reporting on conflict minerals by publicly listed companies in the US. More recently, reporting on the carbon footprint of supply chains with the goal of becoming carbon neutral has become the focus of highly developed companies and their supply chains. Volkswagen has committed to becoming carbon neutral by 2050 in compliance with the Paris Climate accord, and other large companies are following suit.
All in all, getting to know your supplier’s supplier is a critical element of strategic supply chain management. It is fundamental to the entire system, a keystone to risk management, and critical to business continuity strategies for successful companies. Engaging directly with engineering teams brings speed and new technology to new designs and brings new products to market faster. And socially responsible companies need to know who is supplying their products all the way through the chain, to build a sustainable supply chain and drive continuous improvements.