We’re continuing our foray into the top barriers to success that we outlined in our top barriers post that chronicles the barriers that keep coming up over and over again in every Procurement survey in our effort to ensure that you don’t have to read another state of procurement study for the next 5 years. Today our focus shifts to quality and supplier reliability and continuity.

A Brief History …

Back during the Industrial Revolution and the Gilded Age, most corporations were vertically integrated down to the raw material supply. It was one big operation from raw material to processing plant to distribution to end customer. If there was a quality issue, it was your operation, you went to the factory, you had a stern talk with the factory floor manager, actions were taken, and quality improved. If supply wasn’t steady, it was a problem with your mines or farms and the solution was the same. You went to the mine or the farm, had a problem solving session with whomever was in charge, and that was that.

While the railroads may have required supply from a lot of different corporations, which resulted in the first handbook for modern purchasing (Handbook of Railway Supplies, 1887), most operations didn’t and, moreover, the railroad tycoons often owned many of the companies they needed. However, with the introduction of the Ford Model T in 1908 and the invention of the first modern electric refrigerator, the Domelre, in 1913 we entered an age where appliances and automobiles and other modern conveniences started to required specialized parts. As a result, as time progressed forward, more and more businesses began to specialize in the production of chemicals and parts to support the increasingly complex manufacturing requirements that arose in the production of these modern conveniences.

Supply reliability and quality became an increasingly important concern as operations went from having to source a few chemicals and parts to having to source dozens (and then when the age of electronics began, hundreds and eventually thousands). If there was a quality issue, you could complain, but you couldn’t ensure it would be fixed in a timely fashion. Thus, reliability of supply started to become an issue if you didn’t have alternatives.

Then global outsourcing began to step up in the 1960s and explode in the 1980s, especially to Japan and then to Taiwan for electronics and then to China and the rest of Asia for everything else. Supply chains extended halfway around the world for everything we buy daily. Quality may or may not match the sample (where the production batch may or may not be produced in the same factory), and if it’s poor, there’s not much you can do about it except to find a new supplier and wait weeks or months for a new shipment. But that’s even assuming you can assure supply at all.

The Problem

Supply chains have gone from tight vertically integrated operations in single corporate monopolies to overly extended and overly complex behemoths that span the globe, consist of multiple tiers (that can easily be 6 to 8 levels deep on average), and often consist of 10,000 or more suppliers because of electronics that supply commodity wiring and connectors and chasis to one-of-a-kind custom manufactured processors. We’ve went from a point where the head of production knew every key component in the product; where it was mined, processed, and made; and who was responsible for or supplied it to the point where maybe one person can name all of the tier 1 suppliers currently being used to produce a single product in question, even if it happens to be one of the core products produced by the company. And that’s a big maybe if there’s more then 10 tier 1 suppliers involved.

An average large organization now has tens of thousands of “active” suppliers that supply everything from office supplies and MRO to products and services for resale to services, with over 80% of these suppliers being in the tail in terms of overall spend (and, usually, number of purchases, with some “active” suppliers only being used once or twice in a year, and some only being used for one year). That still leaves a few thousand core “active” suppliers in the top / strategic spend categories, and it’s impossible to keep an eye on every one and be certain that the next (critical) order is going to come in. Especially when it’s not just supplier solvency and performance, but geo-political, logistical, and regulatory issues that can get in the way, disasters that can bring operations to a stand still, and economic issues (like trade wars) that can upend a supplier overnight.

The Necessary Realization

Not only are modern supply chains are too complex to manage without software, but so is supply assurance. This goes well beyond supplier selection for an award to continuous supplier monitoring from a compliance, performance, and risk perspective to ensure supply keeps coming in and proactively detect and predict issues that may arise.

This is not something any human, or team, can do without a lot of technological help. You need solutions for:

TPRM — Third Party Relationship Management — i.e. Supplier/Vendor Management on Steroids where you can track all continuously active direct tier 1 suppliers who are in the top 80% of spend or supply a sole source critical component or service and maintain their regulatory, compliance, insurance, performance, and risk profile that can be accessed before sourcing events, during regular performance reviews, when issues are reported, and so on.

SCV — Supply Chain Visibility Solutions — that tracks and monitors your supply chain at least to tier 3, and further if possible. You’re going to have a tier 1 problem if your tier 2 supplier goes bankrupt, becomes inaccessible to the tier 1 supplier because of new sanctions or border closings (due to geopolitical tensions or uprising), or happens to be near the epicenter of a significant natural disaster that at the very least will cut off supply lines even if its plant wasn’t damaged. You need to be monitoring to the extent possible critical tier 2 and tier 3 suppliers that you know provide the majority of parts and raw materials that go into your products, especially if your tier 2 and tier 3 suppliers have limited options. And if there’s an issue, you need to know months in advance because chances are your tier 1 won’t realize an issue until your tier 2 is late, which could be way too late for you to find another source of supply.

And, more over, you need to be developing ready-to-go mitigation plans and processes to react the minute you realize there is a disruption anywhere in your critical chain or the products delivered don’t meet the quality requirements. Tagging and monitoring isn’t enough (even assuming you can get all the data in that you need to tag and monitor appropriately), you need to know how to pre-plan, react and adapt quickly to a completely unexpected situation, and execute efficiently.

This means you need a to understand not only your supply chain and production requirements, but also risk identification, risk mitigation, and risk plan execution. Moreover, you need to understand it beyond what an average risk manager in Risk Management (who are looking at more immediate Legal and Cyber risks understand it!)

The Technological Requirements

The technological requirements are considerable and require supply chain aware sourcing and sourcing aware supply chain and expertise from source to sink and back again on both sides.

A continuing reminder that if you want guidance in the short term, hope that your favourite provider reaches out to Bob Ferrari of Supply Chain Matters or the doctor and enables us to focus on writing the series (or in-depth e-book) explaining what modern Procurement and Supply Chain Tech needs to look like (and how it needs to be implemented) to address the challenges, reduce the risks, and address the priorities versus just dripping out tidbits as free time permits.