As Bob clearly points out in our joint series on Supply Chain Matters on why legacy sourcing and (supply chain) planning solutions can’t handle today’s supply chain challenges (and why direct sourcing needs to be supply chain aware), Supply Chains Have Evolved to Demand and Supply Ecosystem Networks.
They are not a simple linear chain anymore. They aren’t even a simple tree where a supplier uses sub-tier suppliers for parts that uses sub-tier suppliers for components that uses sub-tier suppliers for raw materials. A tier 1 supplier could be using a tier 2 supplier that is used by other tier 2 suppliers and a tier 3 supplier could be using a tier 1 supplier for products for manufacturing. Then you have intermediate assemblers and distributors that pull parts, components and materials in, assemble some, and package others in a bundle for resale. Maybe you are selling your product to a tier 3 supplier and don’t even know it. It’s a many-to-many graph. and a very convoluted network that can only be described as a complex supply ecosystem.
It’s a complex network that requires the orchestration of strategic and tactical product sourcing with supply management teams who might be participants in the customer fulfillment process, leaders of the sourcing process, managers of the logistic network, or all three. All depending on what is needed, when, where, and why.
If you only look at one need, from one perspective, at one point in time, you miss the fact that any decision not only impacts every other internal organizational unit in the supply chain ecosystem (which includes sourcing, procurement, logistics, supply chain, R&D, production, and operations), but has network wide impacts, implications, and response.
If you change the supplier for a part during a sourcing process and award a new contract, that affects Procurement since they have to update their catalog and reorder systems; Supply Chain as they need to have the appropriate network in place for cross-docking, temporary warehousing, and storage; logistics as they may need to onboard a new carrier to pick up from the local factory; Production as they have to confirm the part will work across all product lines the part being replaced was used in (and, if not, you may have to retain the current supplier at a much smaller volume or find a replacement); R&D as they will have to confirm the part is okay for all the products they are developing; and operations needs to ensure it is categorized and tracked properly so they understand the data shifts during their analysis and cash flow forecasting.
When you change the supplier, that could have a negative impact on the former incumbent who might have been continuously allocating 40% of their capacity to your business with no quick way to recover that (because they had to cool their pipeline to support you), especially if that part was 75% of your business. (And this could have a negative impact on you if you are relying on them for other parts.) Chances are they’ll have to do layoffs in the short term, and that will impact their OTD and quality on your remaining contracts.
When you change the carrier, they need to reallocate the driver. Probably not a big deal, but if they were subcontracting to a Mom & Pop Trucking Co. for a route they didn’t normally do, that’s a big deal to that Mom & Pop Trucking Co. that needs to find a new regular route fast. And it’s a big deal to you if cancelling that route drops you below the commitment you made (and you lose your discounts and special rates you spent weeks negotiating).
The impact on all of these departments and gears in the supply chain machine have to be considered, especially as those gears turn back towards you. To make the best decision, you truly need to do an integrated analysis across multiple levels of planning (long-term, mid-term, and short-term).
Moreover, this analysis needs to be done in near real-time as businesses need to be able to quickly pivot to changing demand or supply balancing requirements in today’s dynamic global marketplace (brought on by pandemics, border closings, canal closures and slowdowns, sanctions, economic upheavals, wars, and trade wars). This requires an integrated network view across business departments, views, and timeframes.
And, as we have said before, it requires that business finally Think Different, and stop reverting to spreadsheets as a means to attempt to span non-integrated internal and external information streams. But considering that Excel is still every analysts favourite tool and they all want to be King of the Spreadsheets, who knows when the shift to modern, integrated, analytics will finally happen.
