Inside Supply Management Magazine
An SRM Guide for Navigating Economic Shifts
By William Crane, CPSM
The Great Recession that lasted for an 18-month period from December 2007 to June 2009 provides invaluable learnings that have been applied to maintain supply during these dynamic times. The coronavirus (COVID-19) pandemic and the consensus forecast of a recession in 2020 are creating stresses and disruptions in the global supply chain that are only now presenting themselves.
However, levelheaded leaders are persevering with proven supplier risk management (SRM) strategies and tools to best reposition their organizations to thrive in this new reality. Yes, these are serious times, but we must not forget that we have cured polio and put a man on the moon. During times of uncertainty, we tend to forget that we are capable of great things.
“Progress occurs when courageous, skillful leaders seize the opportunity to change things for the better,” President Harry S. Truman stated.
Supply management leaders who pragmatically act during times of volatility can help their teams and organizations survive and prosper — while better positioning them for when the boom times return.
A proven SRM guide to form your team, prioritize your actions and monitor your risk can allow you to take decisive early action to mitigate or avoid supply disruption.
Form a Scalable SRM Team
If you have a core, fully operational SRM team, you are ahead of many organizations. Downturns are unpredictable and can accelerate rapidly, so put a scalable infrastructure in place now to empower swifter future action.
Secure additional people bandwidth before your competitors by aligning with services firms that can provide experienced SRM professionals and technology tools if the economy worsens more quickly than expected. On-demand technology-enabled services such as supplier-quality-as-a-service (SQaaS) partners can remediate supplier issues due to issues like bankruptcies and the resulting requisite resourcing. Typically, manufacturers assemble small, core teams with diverse academic and professional skill sets (like operations and finance) and align with complimentary services partners to augment the core teams’ talents.
Since people react to hardships differently, the economic downturn will impact teams in more personal ways, such as health, safety and child-care concerns. As such, you need to build a larger team and prepare for worst-case scenarios in which team members contract COVID-19 and must focus on recovery.
Unlike past crises, it is mission critical to geographically disperse team members as widely as possible. Leading organizations are separating employees by directing them to work from home and/or locking down facilities with strict medical-grade sanitary processes.
Talent and Technology Options
Leaders will need to make critical judgment calls regarding the number of suppliers that can be analyzed. These decisions will be largely based on available SRM team bandwidth, number of suppliers and analysis speed.
Manufacturers have four main SRM team-bandwidth approaches: (1) internal teams, (2) services firms, (3) software firms and (4) hybrid. Many manufacturers are turning to hybrid approaches that combine internal teams, third-party service partners and software to ensure the team has access to additional bandwidth and the latest tools. Software-only suppliers tend to have a more narrow perspective, often recommending technology to solve challenges, while service-only providers (like management consulting firms) can lack industry-distressed supplier issue-remediation experience.
Technology-enabled services firms combine proven teams with focused software solutions to provide a unique speed advantage and lower-cost support model. Further, technology-enabled services from experienced SRM firms tend to lend themselves to the soundest practical guidance. During pandemics like COVID-19, where on-site work (and supplier monitoring) is limited, supplier performance software with data request, delivery and monitoring capabilities should be prioritized.
Deploy a Phased Risk Analysis
Identification and qualification of your baseline risk is essential in the migration from reactive to predictive SRM. Further, it is imperative that you take a phased approach to funnel suppliers through deeper, more time-intensive levels of analysis to prioritize your actions and accelerate your results.
During rapidly shifting economic times, avoid falling victim to reacting to hot issues and getting lost in big data analysis of low-impact potential supply issues. It is crucial to maintain a supplier list prioritized by risk and guided by a consistent scoring metric, as this will facilitate rapid continuous action prioritization. Further, create a virtual war room on shared cloud software so all information — strategy, processes, tools and reports — are available in real time to empower dispersed team members.
The Five-Phase Process
Following a five-phase supplier risk analysis can save time and focus efforts.
1) Review high-level risk metrics on the supply base. Key initial supplier assessments to consider are (1) total spend, (2) relationship (strategic, sole-source or multiple sources), (3) quality, (4) delivery, (5) financials and (6) business. Don’t prolong the process with overcomplicated early analysis. In times of crisis, known inputs and outputs that can be clearly communicated to leadership and extended teams is superior to grandiose algorithms that only one team member might be able to explain. Score suppliers on each metric on a 1-to 10-scale, from high to low risk. Average the six scores for one overall risk score for each supplier. In most cases, this analysis can be done in an afternoon.
2) Complete an analysis of high-risk suppliers. Conduct a deeper-dive analysis on the top 20 percent of your highest-risk suppliers. A supply chain failure mode and effects analysis (FMEA) comprised of a (1) boundary diagram, (2) affinity diagram, (3) parameter diagram and (4) refined risk score will provide additional risk clarity. This approach can focus limited resources on the most impactful high-risk suppliers while accelerating time to action. Repeat the above refined 1-to-10 scoring and ranking system.
3) Conduct a deeper analysis on prioritized highest-risk suppliers. Conduct a deeper analysis of the top 20 percent of highest-risk suppliers from Phase 2, prioritized from highest to lowest risk. Develop a supply chain value chain map that includes identification of Tier-2 and Tier-3 suppliers via a plan for every part (PFEP). A detailed PFEP will enable a clearer picture of process flows, inventory, lead times and tooling, which will be crucial in game-planning your support and action plans to maintain supply.
4) Assess supply risk on prioritized highest-risk suppliers. This analysis can include as many as 50 metrics to identify, monitor and remediate bottlenecks and other supply issues. Utilize such proven supplier quality tools as the eight disciplines model and supplier assessment tools for the best results. Establish a collaborative-partnership mindset toward acquiring more detailed supplier company, capability, specific plant and detailed financials while supporting data driven-actions.
5) Remediate and monitor highest-risk suppliers. As part of an ongoing SRM supply performance process, review and remediate top issues and update the supplier risk ranking — daily, if necessary — as the broader market continues to fluctuate. Be prepared to make tough decisions and maintain focus on the top 20 percent of highest-risk suppliers.
Communication is Critical
Maintain a multichannel communication plan. People digest information differently, so recap all critical verbal communication in emails. At the start of an economic downturn, SRM teams meet twice daily, in the morning and afternoon for short (15 minutes) update meetings. Many organizations are embracing newer, agile ways to work, using team-collaboration software tools like Slack, Microsoft Teams, and Agile Project Management software to communicate tasks and priorities in real time. Short team update meetings can then be re-prioritized for key decisions.
Supplier communication is just as important as internal communication — and careful thought should be given to messaging. The most effective email communications clearly outline your organization’s viewpoint and plans. Suppliers understand you will request real-time financials and other information, but it is also important to offer value and provide insights on how suppliers can strengthen their businesses.
During major economic transitions, procurement professionals must make bold decisions, often in compressed time frames. Thus, the quality of data and the pace at which it is received, analyzed and acted on — especially in a crisis — determines success. As global markets are more intertwined and software computing power more advanced, the speed at which practitioners can decisively act on complex issues can be a competitive advantage.
William Crane, CPSM, is founder and CEO of IndustryStar, an Ann Arbor, Michigan-based on-demand services and software technology company that partners with leaders to reduce the cost, time and risk of bringing new products to market.