July 23, 2024 Apply Lessons Learned to Improve Supply Chain Resilience

The imperative to build a resilient supply chain has been made clear, but many companies struggle to identify the right steps to take.

By Wil Knibloe III and Michael Taelman

When it comes to managing the supply chain in a globally connected world, the one thing companies can count on is volatility, whether geopolitical uncertainty, environmental events, or trade disputes. To enable consistent execution despite the certainty of uncertainty, companies need to be diligent in the design, planning and execution of supply chains.

A comprehensive, strategic approach to supply chain design begins with the right team: Are the best teammates and leaders in place? From there, executives must consider whether materials should be made or purchased, identify prospective suppliers, and create a plan for forecasting and service levels, inventory planning and management, and more.

Following are key questions and areas of potential exposure that all supply chain managers should review on a recurring basis. For most companies, this review should take place on a prioritized, segmented, and regular cadence.

While the supply chain includes both suppliers and manufacturing locations and the logistics, planning, and coordination between the two, the following discussion relates to supply base planning, not manufacturing.

Design and maintain an efficient and resilient supply base

A cornerstone of supply chain management is robust strategic sourcing. Some questions to guide the supplier selection process include:

• Do we have a professional, ongoing process for evaluating suppliers and selecting the best and brightest?
• Which vendors are best positioned to meet business needs, based on their geography and geopolitical zone?
• Where is the risk in the supply chain? Are prospective suppliers vulnerable to local political changes or environmental threats?
• What is the contingency plan when one of those risks comes to fruition?
• Do vendors have a solid track record of meeting their customers’ needs? What is the risk of their failing to perform adequately, and how does their lack of performance affect our business?
• Have sufficient redundancies been built into the process, particularly in the case of single-source suppliers?

Next is forecasting and planning – a structured process of understanding customer demand and sequencing production schedules to meet customer needs based on product mix and attributes. Questions companies can ask themselves regarding planning and forecasting include:

• Do we have an established structured sales, inventory, and operations planning process (SIOP) in place?
• Do we have metrics to measure forecast accuracy, schedule adherence, and schedule attainment, and do we have an iterative feedback mechanism in place to drive improved performance?
• Has the maturation of the SIOP process led to improved working capital levels (dollars, turns, excess and obsolete) and enhanced on-time delivery performance to the customer? Or is stagnation or degradation present in these internal and customer-facing metrics?
• Is there a policy to define when the schedule is firm?
• Have we established clear lines of communication and escalation protocols for schedule changes?
• Do our suppliers adequately support our business, or are they adversely affecting planning and scheduling execution because of suboptimal delivery and quality, inconsistent lead times, costly minimum order quantities, or insufficient upside or mix flexibility?
• Are forecasts integrated into our enterprise resource planning (ERP) system and other technologies? If not, why?
• Are we taking advantage of the full functionality of our ERP system, or do we use disparate spreadsheets and makeshift solutions to plan?
• How could we use AI to improve models and practices?

From there, companies need detailed stock-keeping unit (SKU) level inventory plans, which involve setting inventory levels, ordering, storing, sorting, and tracking raw materials, work in process (WIP), and finished good inventory. Questions companies can address regarding the inventory plan include:

• Is there a plan for every part?
• Do we have a stratified approach such that high velocity parts or SKUs (A’s) are treated differently than lower velocity parts (D’s) in terms of stocking levels, custom lead times, and service-level expectations?
• Are we using best-in-class methodologies and calculations to inform inventory replenishment parameters, such as minimums, maximums, reorder points, and safety stocks?
• Do we have key data points documented and updated, such as lead times and minimum or economic order quantities?
• Have we defined what is make to stock, make to order, assemble to order, or postponement?
• Do we have robust inventory management practices regarding cycle counting, transaction confirmation, substitution, scrapping, and inventory movements?
• Are we using our technology to support inventory management?
• Do we have metrics to measure indicators of inventory health, such as aged inventory, fill rate, and inventory turnover?

Finally, in the ongoing process of supply chain management, companies must be prepared to monitor suppliers and react to issues as they arise.

• Once orders have been released – whether work orders or purchase orders – how are they being monitored?
• Do we understand where purchase orders are going? Are we confirming lead times? Are we monitoring orders while they exist within our supply chain?
• Are we monitoring vendor performance for things like on-time delivery, quality, and fill rates, ideally with a supplier scorecard? 
• Are we tuned in to the regions where suppliers are located, enabling the company to take preemptive action in the case of regional issues that might arise? For example, if there is an earthquake, can we easily see which vendors are affected and how, and react accordingly?

Take control with vigilance and proactive planning

To stay on top of their game, operations leaders and executives should establish a regular practice of evaluating the above areas on an ongoing basis. By doing a pulse check every six to 12 months, executives can see what is working well and what needs revision.

With active management and optimization, companies can create a more efficient and resilient supply chain.

Learn more about supply chain management solutions at Crowe.

Wil Knibloe III is the managing principal of supply chain at Crowe.

Michael Taelman is a performance improvement manager at Crowe.  

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