The ability to sense danger before it occurs is paying dividends for many organisations both in maintaining high performance levels and reducing costs.
At a time when agility and flexibility are of increasing importance, even the most well managed supply chains can be susceptible to unexpected short term problems that can have significant impact and longer term damage on productivity and customer relationships.
Like any chain, success depends on the strength of the weakest link, as a leading car manufacturer recently discovered, when inconsistent quality at a small, third tier supplier of lighting components, located in Mexico, eventually proved to be the source of what appeared to be a much larger supplier problem. The time spent on incorrect assumptions and the investigation of possible issues with the first and second tier suppliers, before finding the real root cause, completely disrupted production and created much customer dissatisfaction.
These problems often emerge as a result of a change that places unexpected strain on the supply chain and thus exposes the weakest link. Often it is caused by volume changes, new technologies, variation in processes, or changing requirements which challenge a supplier’s organisational or technical capability.
Increasing pressures to remain competitive have also given supply chain leaders the need to explore new sourcing opportunities across the globe and this in itself can also increase the potential risks.
How does your company manage risk?
Organisations realise the importance of managing supplier risk but many companies still rely on traditional ways:
- Relying on the ‘next person’ in the chain, such as the first tier supplier, or primary logistics partner, to manage risk and arrange any subsequent recovery.
- Adopting a command and control approach that simply sets unachievable goals and abdicates responsibility to suppliers and service providers.
- Deciding to completely outsource responsibility, with little due diligence, and placing complete reliance on the capabilities of the supplier, or logistics partner.
Alternatively, the smart supply chain organisation has developed the ability to monitor the health of its supply chain continually, looking for the early warning signs of danger and acting, before problems occur. This does require proactive investment but it pays dividends for organisations, both in achieving and maintaining high levels of performance and in reducing costs – including the high and avoidable costs of an unexpected supply chain failure.
Five indicators that your supply chain could be at risk
In our experience there are five warning signs that supply chain leaders can monitor on a day to day basis to help identify supply chain risk.
1. Are you seeing a decline in the supplier’s culture of quality control?
- Are suppliers not telling you about emerging problems? Do you often find that you have to tell them about a problem, before they realise it?
- Are your suppliers increasing their reliance on inspection processes for quality control, rather than addressing the root causes of problems and building in quality?
- On your next site visit, look for clear evidence that any of your concerns have been fed down to the teams responsible for taking remedial action.
2. Regularly check your measures and baselines
- This sounds fundamental but often a suppliers’ view of on-time and in-full performance, for example, can be at odds with those of their customers.
- Base data can rapidly become out of date, while unclear alignment on supplier capability, such as capacity and lead times, can cause significant disruption to performance.
- Quality standards can also be misaligned, particularly where standards are more subjective. Has a reference point for a minimum acceptable standard been agreed and have teams been trained to deliver against this?
- Is there a visible ‘control room’, within the supplier, to measure performance, corrective actions and improvements on a daily basis?
3. Ask about sub-tier management
- Just like you, your direct supplier is dependent on the performance of their suppliers, and sub-tier supplier management can be variable.
- Does the supplier understand the sub-tier chain and the performance and constraints within it? Are they able to manage existing and potential problems proactively?
4. Has the supplier still got the organisational ability to meet your requirements
- Does the supplier leadership team give you confidence that they are in control and do they act in an open and transparent way? Do they understand your needs, have a grasp of their own challenges and a plan to develop or source the right skills to deliver to your requirements?
- In your experience, do their front-line leaders understand or operate a sustainable management system to deliver best practice operational basics? Look for (as a minimum) hour-by-hour visual planning and control, together with regular process audits and robust problem identification and resolution processes.
5. Look at how you are managing your suppliers
- Frequently working outside agreed service levels, or having poor change control processes could mean that you are placing undue strain on suppliers. How do you monitor and assure your suppliers?
- Do you take a command and control approach that relies on reports and commitments, with on-site review meetings taking place in an office? Or do you proactively engage, with assessments geared towards maintaining and raising standards and delivered through ‘go sees’ to the shop floor, to look for evidence based confirmation?
How can Unipart help?
With over 25 years of capability in managing and developing complex supply chains across several sectors (including automotive, which is very much our heritage), we have learned at first-hand what can go wrong and gained the knowledge of how to help companies address the many challenges that can emerge today.
We have highly experienced teams that specialise in turning around sudden shortfalls in the performance of suppliers at every level. Using rapid diagnostic tools, our teams devise and implement answers to the range of problems that can stem from the issues listed above. We provide practical solutions that extend from swiftly implementing operational basics to resolving urgent quality problems and dealing with planning and logistics issues.
In addition, we can pro-actively help to de-risk production changes and eliminate the cost of failure in supply chains that can result from: new product introduction; new facility launches; switching of supply; volume changes and the introduction of new technology.