What can go wrong?
In my career I have witnessed supply chain disasters that resulted from lack of knowledge or poor planning. You may be thinking that knowledge and planning are the cause of most failure, so you know this won’t happen in your company. Let’s look at one example to see if you may have some of these same conditions in your supply chain.
A few years ago I was working with a firm that made survival gear for boaters. They had a big concern because one of their competitors had made the move to global sourcing and they needed to find a low cost supplier to remain competitive. This client called me in when they had sourced their goods at a factory that they hadn’t seen, had no relationships and were in danger of missing the entire boating season due to poor specifications, communication, inferior product and several missed deliveries.
Failure 1: Offshoring makes it extremely difficult for firms to manage and monitor supply chains.
While it is often convenient to use a trading company as a sourcing agent, it has the potential to put your company at extreme risk. It is essential to conduct required due diligence. You can’t be 100% sure of who the real supplier is. While it is an expense, failure to visit to the factories, create personal relationships with the seller and set up third party monitoring of production, is a failure of best practice. It would be a catastrophic event to discover a subcontractor with unethical practices, child labor, environmental and other issues was named as a source of supply for your company. One of my clients in the metals business outsourced its Asia procurement to a third party (paper manufacturer); the result was a disaster. Not only did the company not understand the technical requirements, they had no vision of the buying company’s ethics and corporate social responsibility programs.
Failure 2: When sourcing globally, companies must build the same relationships and subscribe to the same level of research on the supplier as they do domestically.
Many companies are driven to global sourcing to achieve lower pricing, but cost pressure can lead to compromising quality, performance, TCO and ethics.
Failure 3: Maintain a focus on all aspects of the total cost of ownership.
Initial pricing may be higher, but sometimes the higher priced item provides higher efficiency, productivity and throughput, lower warranty claims and overall value increases. Overall, while we all work to achieve cost and value improvements, we should work to achieve best total cost sourcing rather that price sourcing.
These three examples are ways that things can go wrong. Total cost is not a novel concept, but it is rarely used because people don’t take the time to analyze what they buy and put the key metrics in place to show that they are sourcing best value!
Are you covered in these 3 areas?