Covid-19 has turned the supply chain world upside down, but here are nine suggested supply chain strategies for tough times.
1. Forecasting/Better Allocation
Suppliers will benefit from a proactive, 12-month forecast. While they can appreciate the difficulty of you knowing what is happening with the market, material prices, logistics and your customer’s whims, anything would be useful for their overall business planning. Be curious and learn all you can about your supplier’s material ordering practices. The more you can share, the stronger position you’ll be in for a higher allocation. There’s power in predictability.
2. Freight Bundling
Bundling LCL deliveries creates buying power. Bigger fish are more attractive to carriers. When our team finds capacity, we’re grouping client shipments into larger shipments to create economies of scale. Carriers are giving priority to full containers vs. LCL.
3. Fast Boats
Less well-known but cheaper than air, “fast boats” get goods quicker to port. Upon arrival, goods receive priority routing and quicker customs clearance, cutting about two weeks off the process.
4. Managing Terms
Material prices are at historical highs across many categories: ABS polymer is up 30% year-over-year, iron ore is up 100% YOY, stainless steel is up 30% YOY, hot-rolled steel is up 90% YOY, etc. The days of 100% payment upon receipt of goods feel like ancient history. Suppliers are demanding significant down payments and the balance at bill of lading. Suppliers’ asks are more assertive because their sub-suppliers are demanding 100% payment upfront for materials. Buyers refusing these terms will be bypassed in favor of others lined up and ready to pay.
The numbers of broken contracts, with fixed pricing, fixed shipping, is on the rise. Buyers are being asked to pay spot prices linked to material pricing and actual freight. How to manage? If you can, have clearly defined contracts that describe when and how to adjust pricing based upon agreed to indices. There are two benefits; to help avoid unpredictable spot pricing and to lessen arguing about when and how to adjust pricing. This practice applies for both supplier and customer agreements to ensure that you have the ability to pass along increases.
5. Produce and/or De-Feature
New automobiles have between 40 to 150 chips, and shortages are causing plant shutdowns worldwide. To cope, Ford continues to produce F150s in Kentucky, and is renting parking lots to store them until chip sets are available. GM is defeaturing, for example, by removing its intelligent rearview mirror system temporarily. With lead times on chips extending out 200, 250, even 350+ days … maybe that old-school analog speedometer will make a comeback?
6. Force Majeure
This tactic is utilised in some industries, but not in others. We’re increasingly hearing about exercised clauses in automotive where contracts tie parts availability to performance, and suppliers face stiff fines for lack of delivery. Force majeure is less seen in consumer goods, where big-box retailers hold the cards and simply remove a product from store shelves and replace it with another. If your contracts with customers have built-in penalties, network around to find out if force majeure letters are being circulated, by whom, for what, and when.
7. Keep Customers and Distributors Alive
Successful strategies your suppliers are using to manage allocations upstream can be useful when managing expectations and satisfaction of your own customers downstream. The basic idea is to avoid starving the customers on which your revenues depend. Review your allocations often to ensure the channel on which you’ve built revenue success stays alive.
8. Communicate Like Crazy
Arm your salespeople with the resources to set expectations. Given them access to material pricing indexes, weekly shipping cost data, currency exchanges and other tools to explain the volatility that you are experiencing. This will take the edge off tough conversations. Customer service is key.
9. Consider Direct
If you’re doing business with a trading company, get better visibility, quality, service through direct relationships with suppliers.
For many months, consumers shifted spend to goods when they could not spend on services like vacations and dining out. Today, demand is outstripping supply in both product and service sectors. The bullwhip effect of COVID will be with us for a while.
Source: Industry Week
