May 2022 Volume 4

OPERATIONS & MANAGEMENT

The Importance of Supply Chain Management By Vic Venettozzi

In the late 1990s, Robert Monczka first used the term supply chain on a snowy afternoon at Michigan State during a Global Electronic Benchmarking Network (GEBN) meeting. Work continued at the Center for Advanced Purchasing Studies (CAPS), and modern supply chain thought, and recognition of supply chain dynamics became essential in our profession. As a practitioner at some of theworld’smost progressive companies in supply chain management, I have been fortunate to witness an ever growing sophistication regarding supply chain thought in the last two decades. But for sure, supply chain management can continue rapid advancement in productivity generation, risk reduction, and collaboration, particularly when supply chains extend across borders and oceans. It has been said many times – supply chains compete, not companies. Of late, with the many challenges OEM’s and Tier One customers face with supply disruption, some creative thoughts and tools have emerged. Much of the activity is due to the current crisis, but other companies have operated sophisticated and data-rich risk management strategies for years. And, of course, it is a space for automation that will ultimately create a standard for risk identification and highlight the need for hardening on-shore, near shore, and off-shore supply lines. Yossi Sheffi of MIT’s Center for Transportation and Logistics recently wrote in the WSJ that the use of buffer inventory and other guards against stock-outs should not replace carefully designed supply chains that are built in concert with like-minded suppliers. Undoubtedly, many companies will correct course if their near shore and off-shore supply lines have placed them at heightened levels of risk. However, the leading edge of global sourcing suggests that buyers can still have geographically extended supply lines, but insulating themselves from the risk takes intense thought, effort, and constant tuning and adjustment. The cost benefits of global sourcing can be corporately intoxicating. It is possible to press the limits – even ignore risk abatement strategies one year to the next – for maximum saving to bolster earnings in the short term. The point is, with careful design (what we call supply base by design at our group of companies), there is a global sourcing model that can quickly adapt to changing geopolitical factors. It begins with classic and proven commodity segmentation tools – clearly identifying where sub-commodities lie in the Competitive Supply, Strategic Supply, High-Risk Supply, and Low-Impact Purchases quadrants. Next, what is the projection for current and projected spending? Does an understanding exist regarding the size and type of available suppliers, and how many suppliers can live in

the buyer’s supplier community for the relationships to be relevant for both buyer and supplier? Relationships in supply management are better defined as demanding business relationships for both buyer and supplier. At Consolidated Industries, we generally supply forgings to aircraft manufacturers and seldomly provide forgings to lower than OEM Tier 1 companies. We see all manner of supplier performance evaluations. They range from rudimentary to multi-faceted and sophisticated. The best multi-factor evaluations include metrics for delivery accuracy, quality performance, perfect receipts, new product support, customer service, LTA adherence, buffer stock readiness, responsiveness to emergencies, and request for proposal response time. Another OEM includes most of these factors and provides clear indications of our position within their commodity structure and an indicator of competitiveness. So, the best supply chain practitioners use differentiated buying strategies based on commodity segmentation.Their supply base for a given commodity within the Strategic, Competitive, andHigh-Risk Supply are well-designed, and the business relationship is essential to their suppliers. Suppliers are segmented into these or similar categories – New, Strategic, Growth, Stable, and Exiting. Ratings are multi-faceted and balanced – scores may be weighted heavily regarding cost, but otherwise, the other supply dynamics are valued and considered. The next question - does the formal strategy for the commodity include near-shoring or off-shoring? Despite the current times, sourcing organizations cannot ignore competitive and emerging marketplaces. Their supply chain management organizations are the bedrock of that competitiveness between competitors. A company can ill-afford to get out of step with the global market. But simultaneously, the sourcing model employed must be variable and relatively fast to change. Early in my sourcing career, I was fortunate to work for a Japanese automotive tier one. My job was to help engineer the global supply base, which included bringing Japanese suppliers to North America, creating liaisons between Japanese and United States companies, and joint ventures that resulted in new hybrid suppliers in North America. The result was a versatile supply chain that could change its dynamics in a matter of weeks. And these demanding business relationships and globalized supply chain models have lasted for over thirty years. Yes, volumes weremassive, and purchase amounts were considerable. But many of the theories and methods are scalable. In another

FIA MAGAZINE | MAY 2022 46