BY MICHAEL POWER
BALANCING ACT MANAGING SUPPLIER RISK IN THE COVID-19 ERA If nothing else, the COVID-19 pandemic has highlighted how much risk already existed in supply chains. The global nature of modern trade shows how much exposure is tied up in suppliers, many of which are located around the world. But the economic and health crisis brought about by the coronavirus isn’t the only danger organizations face in dealing with suppliers. How should organizations prepare as we move into a post-pandemic world? One thing the pandemic has done is to expose weaknesses in supply chains that were already there, says Patrick Etokudo, general manager at Sherritt International Corporation. For example, while offshoring has been an effective strategy for many organizations, the practice’s weaknesses have been illuminated by the coronavirus crisis. Many organizations have also struggled with supply capacity, lacking enough product to deal effectively with the current crisis. Single sourcing and a lack of contingency have been problems for many, and organizations that thought they had great relationships with suppliers suddenly found those relationship strained in recent months. Over the years, companies have offshored in an attempt to boost efficiency. Organizations should now move in the opposite direction and look to either nearshore or onshore, Etokudo says, with each company and industry having to decide what the optimum mix should be. With pressure on liquidity, some suppliers have buckled from the lack of access to cash, he notes. Natural disasters, diversity of suppli20 DECEMBER 2020
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ers, cybersecurity and geopolitical tensions have also affected supplier risk, he notes. “We need to keep getting closer to our suppliers and practically manage these relationships,” Etokudo says. “Those of us who were not trying in the past need to start it now. It’s high time we understood our suppliers.” To improve visibility, advanced industries and organizations should invest in joint improve ments with suppliers while auditing their performance continuously, he says. Recent news about vaccine efficacy means that the beginning of the end of the pandemic may be months from now, rather than years. That makes for a perfect opportunity to get a line of sight into supplier distress, where in the supply chain inventory has been sitting as a result of the pandemic as well as what alternatives there are in dealing with those inventories. ASSESS THE SITUATION Supplier risk assessment has been an important tool throughout the pandemic, says Maria A. Greaves-Cacevski, strategic sourcing manager with Thermo Fisher Scientific. Customer focus, data quality, change management, continuous improvement and communication are the five key areas to manage when looking to determine that risk assessment for suppliers, she notes. Thermo Fisher Scientific is a contract pharmaceutical manufacturer, and the company has been just as busy – if not busier – than it was before the pandemic, Greaves-Cacevski says. But the crisis has affected the organization’s ability to meet standard lead times, affected
logistics and increased transportation costs, primarily due to increased use of air freight. Some of the company’s suppliers have also shut down sites and reduced work shifts. “Even though we got back up to a level, our suppliers aren’t at the same level,” she says. “A supplier risk assessment asks those questions. How many shifts are you operating with? What’s your workload? What happens if you have contamination of your water supply? What happens with your tier suppliers and your raw materials? Some of our trends have been impacted because our own suppliers can’t keep up to their regular operations. We’ve had an increase in lead times, in transportation costs.” Going forward, the company will look at dual sourcing rather than single sourcing, GreavesCacevski says. Another option is to amalgamate requirements across its North American sites, bringing it into centralized warehouses, then ordering from those warehouses rather than direct from the vendor. That option supports cost efficiencies by volume procurement while reducing the logistics involved when vendors deliver to one spot at a higher volume. “Our sites individually are then ordering internally and managing from our centralized warehouse to our DCs or to our sites,” GreavesCacevski says. While organizations may think they need a formal or robust supplier risk assessment that’s not necessarily the case, she adds. Some organizations may not have the resources for that. Those companies can simply take the knowledge they already have and put it into a template format. “You don’t need to have a separate department. You don’t need to have a robust legal document. I think you just need to have a list of questions that you use for every single vendor and try to have it as specific as you can to your material as well as to your business,” she says. “That way you cover a lot of what-if scenarios long-term.” Regardless of the challenge, partnerships with suppliers that are a win for both sides matter more than ever, says Jon Rosemberg, senior vice-president, merchant operations & program enablement for Indigo Books & Music. For example, when the pandemic hit, the company had to manage cash flow as efficiently and effectively as possible, he says. There were many conversations with vendors and those able to extend longer paySUPPLY PROFESSIONAL
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