Have you looked at your current sourcing strategy?
The supply chain industry is experiencing higher demand, scarce inventory, a labor shortage, longer lead times, and increased supply chain costs. With these continuing challenges, the new year is a good time to adjust your process for better business performance.
If you sell a product, you certainly know the increased supply chain costs that have been driven by the pandemic. Normally you solve for one bottleneck, but now these bottlenecks are popping up like heads on a hydra. Traditional diagnostics and solutions are not solving for the entire supply chain and many companies are still at risk of further disruptions.
The pandemic’s effect on procurement comes down to a food processor’s risk management strategy, and many companies are using a multi-sourcing strategy for reducing supply risk, particularly for high-impact items.
There is the temptation to leverage volume to get a lower price, but the more concentrated the source, the higher the risk exposure. With international sourcing, it’s a similar argument. With international sourcing, it’s a similar argument. From a price perspective, international is frequently attractive. However, in many cases, the long lead times limit the ability to flex your operations quickly. If there is a spike in demand, that can lead to unplanned air freight and other expedite charges. There’s a lot to be said for considering multiple domestic suppliers or offsetting the risk of international suppliers with a domestic supplier.
It isn’t just about cost and capacity. Food safety is also an element. Processors should seek to diversify to reduce the risk of food-borne disease outbreaks. Risk diversification should be weighed against the cost of, for example, validating a new supplier and the amount of time and expense that goes into it.
When you look at portfolio diversification, it depends on the portfolio’s size to ascertain how much diversification you can cost-effectively build in. Statistically, there’s a rule of thumb of investing in no more than 7% in any single asset to appropriately de-risk things. That’s probably not realistic for supplier diversification, but supply chain managers need to assess risk and provide guidance for their buyers and planners for the degree of diversification necessary.
How can Adroit help?
Adroit’s capable supply chain planning team, paired with today’s technology, can help analyze the potential impact of various risk scenarios. The F&B industry has learned that a more proactive approach to planning is necessary. Planners need to take a risk-based view of their customer and supplier portfolios. Management can then decide how much investment they want to make to mitigate those risks. It’s ultimately a judgment call that planners need to communicate to the executive team regarding risk, probability, and cost.
Take our following case study as an example. Our client’s costs rose 500%, on-time delivery dropped, and stock outs skyrocketed. In the past, the solution would be to find another 3PL, add additional inventory, or look for additional distribution lanes. However, now you need to develop a strategy for all of them and setup a new sourcing network for these new solutions to deploy in harmony and be easy to manage.
Sound too good to be true? Well, that’s what Adroit delivers. With our industry expertise in a wide range of areas, we come up with collaborative solutions to re-design your sourcing network to remove risk, improve efficiency, and improve in-stock. You can leverage a wide range of skill sets and technologies to accomplish this for various budgets. Visit our Planning as a Service page for more information and contact us directly to discuss your case.
