How to Future-Proof Your Supply Chain
Supply chain disruptions are more common than ever, but there’s no getting used to the chaos that occurs when a business can’t operate properly. Ongoing raw material and product shortages resulting in depleted inventories, long lead times and rising costs have wreaked havoc on organizations and consumers alike. While it is true that the current crisis is largely due to the pandemic, this massive disruption exposed the underlying vulnerabilities of supply chain models across industries. Now is the time to rethink and transform how we manage supply chains to ensure that they are agile, resilient and responsive enough to withstand any curve ball the future throws.
For more than two years, procurement teams have been forced to reimagine purchasing strategies in real time, and commercial professionals have had the unenviable task of approaching customers with necessary price increases. Unfortunately, supply chain disruptions don’t appear to be going away any time soon. According to a recent study, 60% of supply chains are set up for cost efficiency rather than resilience or agility. Businesses need to learn how to mitigate the lingering effects of the pandemic in the short term, but also how to secure their supply chain and prepare for what’s next.
" To lessen your exposure during times of disruption, research and vet backup vendors that can be activated as alternate supply sources. Regional partners can be a good resource when global access is affected."
To do this, organizations need to adopt a holistic, purpose-driven approach to supply chain management that takes into account all moving parts across operations, finance and human resources. Building a business that is as future-proof as possible means adopting a mindset of continuous innovation and being ready to pivot when necessary. In a post-pandemic future, use these countermeasures to help navigate and overcome a fractured supply chain.
1. Hedge Your Bets
Don’t settle for the status quo. Invite multiple vendors to submit bids for goods and services. Complete a deep dive into proposed contract language to understand the implications of pandemic-related and other provisions. Negotiate on variable costs like price, packaging, payment terms and lead times. Competitive bidding encourages transparency and helps to identify the best value for your organization based on your non-negotiables and priorities.
Be sure to have a contingency plan for when things go wrong. Conduct a strategic analysis of your primary suppliers to assess risk. To lessen your exposure during times of disruption, research and vet backup vendors that can be activated as alternate supply sources. Regional partners can be a good resource when global access is affected. By diversifying your supplier ecosystem, you can reduce the impact on your supply chain and protect your business when disruptions occur.
2. Value Analysis Value Engineering (VAVE)
Conduct a Value Analysis Value Engineering (VAVE) exercise to identify costs that can be reduced or eliminated. If possible, expand your new product development pipeline to include low-cost alternatives. By developing new products¬–or reverse engineering existing ones–with comparable quality and functionality for less, your supply chain will be buffered by improved profitability and increased margins. VAVE can be done on in-house or competitor items to create the most cost-effective products to meet consumer demand.
3. Play Favorites
Once you have developed products with the most value for the least cost, complete an ABC analysis to rank your inventory. An ABC evaluation uses demand, cost and risk to stratify items into three distinct classes. Class A includes the products or services that are most critical for stabilization and growth.
Apply the Pareto Principle–the idea that 80% of your success comes from about 20% of your total effort–to the results of your ABC analysis to really hone in on the products that drive the most value for your organization. These items are critical to your business’ financial success, and their supply network should be secure and closely managed.
4. Be Nimble
Build smart and agile inventory systems to ensure that your supply chain is driving the optimal flow of goods in and out of your business. Calculate inventory turnover rate by dividing the cost of goods by average inventory for the same period. Do this for your overall stock, but also segment the prioritized products from your ABC analysis and complete a targeted inventory turnover calculation for those specific items that add the most value.
5. Live and Breathe Pricing
As billionaire investor and Berkshire Hathaway CEO Warren Buffett said, “The single most important decision in evaluating a business is pricing power.” Understand every intimate detail of your pricing model. When you know the ins and outs of your cost of goods, you can stay ahead of price variations and have a plan in place for how to transfer increases to your customers without causing major backlash.
6. Streamline Communications
Communication is key, especially with customers. Create a collection of communications scripts to convey important information to your customers with consistency and clarity. Language in these scripts should be carefully crafted to match your brand voice and identity. When supply-chain-related product price increases occur, use these pre-approved scripts across all channels to offer transparency and a unified message and to reduce customer confusion.
7. Deliver the Right Price
Landing your product at your customer includes all types of hidden costs. A pre-pandemic logistics report concluded that annual transportation spend exceeded 10% of total expenses for some U.S. business, and costs are likely to rise. When pricing, account for everything that it takes to get your product from door to door, including fuel, carrier coordination, freight audit, compliance costs and more. Look to streamline transportation routes, and engineer product packaging for optimized dim weight to save on costs.
Transportation consolidation can be a tremendous cost saver. Negotiate with major carriers via Group Purchasing Organizations (GPOs). By coordinating logistics and bundling shipments with non-competitor organizations, you will save valuable time and money on your transportation budget. At Argosy Private Equity, we have realized $400,000 in annual savings for clients across our portfolio with GPO-negotiated contracts.
8. Learn What Your Customers (Really) Think
Listen to your customers. Collect and analyze Voice of Customer (VOC) data across all channels. Understand how customers view you versus the competition. Use strategic positioning to drive perception of your brand, products or services to improve customer experience and increase market share.
Once VOC data is gathered and analyzed, measure your price, quality, delivery, and innovation against the needs of your customers to focus your supply chain on the products and services with the most demand. Then, rinse and repeat.
Business Partner Takeaway
Supply chain disruptions are not going away. Agility, continuous evaluation and improvement and a holistic approach to business operations are the best ways to safeguard your supply chain now and be ready to weather future storms.
Connect with us to learn more about how Argosy Private Equity can help you incorporate strategies to secure your supply chain and future-proof your business.