As the world economy improves and end-customer spending picks up, companies will encounter a supply chain risk they may not have experienced in some time: ensuring that suppliers are ready to meet higher demand.
The cyclic transition from running lean to ramping up always involves some rough patches. And, while veteran supply chain professionals may have lived through their share of ups and downs, handling this phase of growth doesn’t seem to get easier.
Therein lies the potential risk.
During a recession, companies often cut back on sourcing and purchasing parts and flush their inventory. They trim their approved vendor lists, or, as a cost-saving measure, outsource broad supplier relationship management functions to a top-tier supplier. Although these steps may be financially necessary, they frequently limit the company’s supply chain visibility to a small core group of suppliers. When demand picks up again, the company must scramble to inform multiple tiers of suppliers about evolving sourcing and production needs and hurry to refill their inventory buffers.
In this phase, limited supply chain visibility proves to be a detriment. Companies cannot see beyond their core suppliers, and, therefore, have no way of knowing where their supply chain dependencies may be weak or possibly cause a supply chain delay or disruption.
Ramping Up With Less Risk
The automotive industry, which was hit hard in the recent recession, may feel this pinch directly, a trend we’ve been tracking.
Besides being a victim to a prolonged downturn, the industry faces greater exposure to risks on a few other fronts. First, it’s getting its supply chain ready for demand upticks in mature and emerging markets, each of which require different product, marketing and channel management strategies. Additionally, the auto industry is following the lead of other sectors, namely the high-tech industry, and focusing on the development of more efficient, flexible and agile supply chain models. These directional shifts put quite a lot of attention on sourcing strategies, part-tracking capabilities and supplier and site mapping solutions.
To address these risks, best-in-class companies in the auto industry (and other sectors) are re-examining their supply chain strategies, looking for vulnerabilities and focusing on building resiliency. They’re doing that with three steps in mind: Plan, monitor and protect.
These three aspects provide an effective way to expand visibility across multiple tiers of suppliers while also tracking parts, supplier sites and news alerts about potential disruptions within the supply chain. They offer companies a wider snapshot of what’s happening in the supply chain and create resiliency in the wake of a disruption. During an economic recovery, those critical pieces of supply chain information are not only vital; they may even help companies rebound faster than competitors.
Curious about how the economic recovery could impact your supply chain resiliency? Wondering why supply chain visibility and risk mitigation plans should include all suppliers and not just the first tier?
Join RIMS & Resilinc for an online discussion about creating a more resilient supply chain on June 5, 2014 at 1 p.m. EST.