Companies continue to bear the brunt of massive commodity inflation, uncertain material lead times, and trade labor and driver shortages — all of this made more painful by increased customer demand. There are no silver bullets; however, pragmatic supply chain management best-practices are improving outcomes for those who adopt them.
Stabilize the Ship
If your team is still chasing issues, appears rudderless, and sales does not have uniform and transparent strategies for managing customers — your organization is behind. We are two years into this event and the following strategies are helping companies assert more control over daily operations:
- Establish a cross-organizational steering committee responsible for working issues comprised of procurement, logistics, operations, and sales that is chaired by an Executive sponsor — robust governance and leadership is essential for understanding issues and effective decision-making
- Maintain a clear “issues list” (e.g., price increases, shortages, delayed trucks, etc.) and dedicate focused supply chain resources to de-bottleneck them which begins with clearly understanding root-cause. Put simply, clear visibility to issues with focused personnel to solve them is essential
- Organize, and lead, two fundamental customer management strategies:
–Ensure policies and process are in place for a managed pass-through of cost increases to minimize margin erosion
–Ensure lead-time promises to your customers stay aligned with what the supply chain can support
These strategies are foundational for stabilizing operations, maintaining margins, and not making false promises to customers. It is likely that added supply chain management resources will be needed in the near term to effectively solve issues — though they can be phased out as issues are resolved. With a clearer understanding of root causes team members will be more effective. To maximize results your teams will have to get creative and find space to compromise with critical suppliers — even in the toughest of situations. Customer management strategies should be grounded with a uniform understanding of strategic segments — i.e., approaches for customers A and B will differentiate from customers C and D. Managing customers begets tough conversations and decisions; however, not doing so creates bigger issues later when organizations fail to meet false promises or end the year with negative margins.
Go on the Offensive
Effective supply chain and customer management strategies will produce a more stable operating base, which will create space and time needed to execute four proactive strategies to improve outcomes down the road:
- Implement processes to facilitate frequent forward-looking supply chain risk evaluations, working closely with top suppliers and carriers
- The benefits are intuitive — focus your efforts on deep-dive reviews of potential raw material or logistics constraints together with your primary raw material suppliers and freight carriers. A crystal ball is not needed as a common understanding of anticipated headwinds combined with join-solutioning goes a long way.
2. Extend your planning and scheduling horizon, working closely with top customers
- Many companies are doubling their planning and scheduling windows. A lot can be accomplished leveraging historical data; however, for the best results the voice of your customer and their view of demand must be represented. This may require sales teams to work differently with customers going forward to understand forecasts and what orders are truly critical and where there may be flexibility on specifications or delivery dates.
3. Consider building strategic inventories or locking in capacity with suppliers for longer lead time/lower risk raw materials and services
- You cannot sell what you do not have, and supplier capacities are booked well into the calendar year. This dynamic is driving companies to commit to larger inventories of raw materials and align with key service providers on capacity commitments. Managing this effectively will require a closely coordinated effort between sales and operations. Final commitment decisions should be transparent, risk-rated and made through the established steering committee.