Spend Matters welcomes this guest post by Diptarup Chakraborti, assistant vice president of marketing at Zycus.
Over recent weeks Zycus has been discussing the role that the procurement function can play in natural disaster management. In pervious articles, we’ve outlined the vulnerability of modern supply chains to natural disasters and highlighted some steps that procurement teams can look to implement internally to ensure their operations are safeguarded against these destructive events. Today we’ll be looking externally to our suppliers to ensure they are best placed to manage disasters.
Clearly, a procurement team can only be as effective as the suppliers that are present within its supply chain. As procurement professionals, we hold the critical relationships with these business partners. It is our role to ensure their performance is on time and up to standard. It stands to reason then that the way our suppliers respond to a natural disaster is a direct determinant of the success of our procurement function.
It is for this reason that we are outlining the following steps that organizations can take to ensure their external supply chains are prepared for a natural disaster.
Diversification of Supply Chain
As we discussed in the first article in this series, the methodologies behind the business processing re-engineering model (lean, just-in-time) that came to prominence in the ‘90s drove buying organizations to reduce their number of suppliers and supplier locations in order to leverage price efficiencies from bulk buying initiatives.
The standardization that these purchasing practices drove certainly made short-term financial sense. However, it has put supply chains and procurement operations under pressure by increasing our exposure and vulnerability to natural disasters. Essentially, we have all our eggs in one basket.
Under this operating model, if one of our key suppliers were affected by disaster, the ramifications for our organization would be huge. With such a heavy reliance on a small number of suppliers, our businesses are less flexible to manage supply chain shocks. In short, the leaner an organization gets the more vulnerable to operational disruptions it becomes.
Perhaps the best way to manage against this sort of vulnerability is to reintroduce diversity back into the supply base. Organizations that are able to leverage several suppliers to provide critical goods will obviously minimize their exposure should one supplier face disruption to their operations.
It is still possible to route the majority of your purchasing through one supplier, allowing your firm to leverage economies of scale. However, having other suppliers that are able to support you in times of crisis is critical for business continuity.
Encourage Disaster Planning Across Supply Base
As we discussed in the second article in this series, it is important that procurement teams establish internal processes to manage disasters within their own organization. However, equally important is the task of ensuring that our suppliers are also prepared for natural disasters.
Supply base disaster planning is vital, particularly when it comes to securing supply for high impact or business critical products. Procurement teams should look to analyze, understand and audit the disaster preparedness of their critical suppliers.
Process steps similar to those required to understand internal business risks from natural disasters, such as risk assessments and the formation of a disaster management team, can be applied to critical suppliers to ensure they respond effectively, proactively and in a structured manner should disaster strike.
As is the case with internal disaster planning, procurement technologies are again critical to procurement teams looking to gain insights into the preparedness of their supply base. Organizations can use technologies like supplier management solutions as a central repository from where they can monitor and set improvement plans for their suppliers.
These sorts of projects provide a fantastic opportunity for suppliers and procurement teams to work collaboratively on an initiative that is beneficial for both organizations. Ensuring your suppliers are robust and can stand up to the threats posed by natural disasters will in effect strengthen your supply chain and in turn your organization. Showing an interest in and providing guidance to your suppliers in this field can also go a long way to consolidating a strategic partnership.