The Coronavirus (COVID-19) pandemic and 2020 recession are creating new stresses and disruptions in the global supply chain that are now presenting themselves. In today‘s hyperconnected economies, the response to supply chain risk has primarily been “reactive”. Traditional, “cost down” sourcing efforts often amplify and expedite supply chain risk (e.g., moving contracts from a troubled supplier, delaying supplier payments, competitive bidding, etc.) Existing Supply Chain Risk Management (SCRM) evaluation tools and techniques also utilize “lagging” financial indicators (e.g., cost trends, profit margin, sales growth, etc.).
The great recession that lasted for 18 months from December 2007 to June 2009 provides invaluable learnings that are already being applied to maintain supply. Each recession and supply disruption event is composed of unique variables but proven SCRM strategies, processes and tools can be consistently applied to quantify, remediate, and mitigate supply risk.
These are volatile times where continuously addressing supply chain risk is making the difference between company successes and failures.
Choosing a SCRM Managed Services Partner
In my experience, it’s the messy supply chain risk stuff behind the scenes that customers never see, which can make or break a company during massive economic contractions and expansions. Proactive supplier assessments, disruption mitigation, and product resourcing can determine company success and failure. We certainly don’t have all the answers, but we recently deployed several new solutions for companies looking to outsource their Supply Chain Risk Management (SCRM) needs to a managed services provider. We hope that these offerings will help aid the US recovery rate, ushering in more innovation, creating more exciting positions, and making an impact on some of the world’s most pressing challenges.
In this blog I wanted to share my perspective on managing supply chain risk along with the big mistakes companies make when choosing an SCRM managed services supplier, and some things to think about if you’re planning on hiring one.
Find SCRM Firm that has Supported Companies Like Yours
You’d be amazed at the number of people who provide input on topics in which they have no experience. University professors who teach supply chain and risk, but never managed a supply chain, or firms that develop global products, but never proactively considered risks while taking designs into manufacturing, the list goes on. Partnering with a firm that’s managed supply chains like yours is critical.
Managing risk during a recession and then doing so more proactively moving forward isn’t for the faint of heart, it’s hard. You want a firm that understands the task at hand and will have your back. You want a firm that won’t turn adversarial when the going gets tough but will instead bend over backwards to do what it takes to succeed.
What to Look for in an SCRM Supplier
During this major disruption, companies might have more limited capital and many newer needs. Investing further and more proactively in supply chain and manufacturing – the people, processes, technology, equipment and tooling – is prohibitive. Managed services, e.g., Supply Chain Risk Management as a Service and/or Supplier Quality as a Service, can be a great alternative to take advantage of lower-cost flexible support that scales with your business more proactively.
A precursor to this type of support is business process outsourcing (BPO), a method of subcontracting various business-related operations to third-party suppliers. Today, cloud software, and new technologies – e.g., artificial intelligence and blockchain – are enabling more modern “pay as you go” on-demand risk management models.
Companies are moving beyond outsourcing non-core services to partner with a newer breed of BPOs, technology-enabled service providers, to enhance risk management capabilities while also shortening product time to market, using variable cost structures, fostering innovation, and yes, lowering costs. Today, companies across industries and of all sizes can outsource part or all their day-to-day SCRM operations.
Supply chain risk management is evolving rapidly and, when used strategically, can be the element to enable a supply chain competitive advantage. Look for a firm that has developed in-house software technology to ensure you keep pace with advancements, a flexible risk management model to give you operational flexibility, and predictive visibility insights, so you remain competitive. The net result should be to acquire world-class risk management capabilities at a fraction of the cost.
In general, services firms have a bad stereotype of performing the old bait-and-switch where they’ll bring in experts for the proposal review and then staff inexperienced resources once a contract is closed. A firm should outline specific people, names, titles and skill sets that’ll support you to enable your company to utilize the best possible resources.
Balance Being Proactive with Cost and Agility
Firms, especially those that are technology-enabled, should offer several engagement options, which may include 1) time and materials, 2) phase, 3) project and/or 4) on demand. It’s critical you receive a fair price for managing your supply chain risks – this ensures you can compete; however, the lowest-cost option isn’t always the best one. Instead, a scalable option that adjusts with you over time is usually preferred. For many companies today, flexibility is more important than cost.
Service quality is another way to measure value. It takes more time to uncover but is worth it to mitigate firm selection risk. Asking for customer references – i.e., talking with three similar customers – is vital. And since you’ll be working with them a lot, meeting with the firm several times to ensure cultural alignment is essential.
Service quality reveals itself in little things like answering your calls promptly, which is essential for companies where things change quickly during disruptions and economic turmoil. Service quality can also be the result of the firm’s underlying processes, as these are what determine repeatable results. Talk to firms about what it’d look like to work with them daily. What would a kickoff agenda look like? Who’ll be your program manager? Details matter, so ask these questions before engaging a firm charged with bringing your vision to life.
There are five resource options available to acquire SCRM talent and technology to empower results.
- Option 1 Internal: Requirements - Build, invest and maintain your own SCRM Team, processes and technology. Pro - Dedicated team. Con - High cost/low agility.
- Option 2 Consulting: Requirements - Source Consulting firm. Pro - Industry experts. Con - Short term focus.
- Option 3 Software: Requirements - 1 + Source Software. Pro - Predictive risk insights. Con – Need experts to leverage technology.
- Option 4 Hybrid: Requirements - Combinations of 1, 3-5. Pro - Best options. Con - Managing options
- Option 5 SCRM Managed Services: Requirements - Source technology-enabled Managed Services firm. Pro - On-demand support turnkey people + software. Con - Newer approach.
Align SCRM with supplier goals to create a competitive advantage. Technology-enabled SCRM Managed Services firms will use a support model that is a mix of fixed and variable costs, scales on-demand to lower supply chain people, software and spend costs while ensuring consistent alignment. Support costs are composed of two simple fees, one for Managed Services and one for Service. In other words, a 4as-needed variable cost (Service Fee) and a lower fixed weekly cost (Managed Services Fee).
How to Align with SCRM Partner for Long Term Success
Subject matter experts are better than one-size-fits-all risk management generalists. You’re outsourcing to gain expertise. Thus a targeted firm – i.e., an SCRM firm – should generate superior results supporting proactive mitigation, as opposed to a generalist management consulting firm per se that focuses on accounting. In general, smaller firms that’ll provide you with more experienced resources, focused attention and tailored support will be better than larger ones. A firm that can also offer ongoing day-to-day supply chain support during and post-recovery can free up your time, allowing your business to better compete and recover in the marketplace.
Part of the challenge with this pandemic is the uncertainty of future sales. Many firms might verbally communicate that they’re easy to work with, so their contracts should reflect this in the short and long term. You need a long-term partner that’s going to take care of issues, not send you a bill for every problem that arises. You need an agile partner that can support your needs and flex up and down, especially during the recovery.