Turning Vision into Reality

Supply Chain Strategies

Supply Chain Strategies

Supply Chain Strategies: In 2024 we expect many items to be on allocation and/or have delivery dates and quantity to be randomly and suddenly changed. Many items, not just computer chips.

During their annual strategic planning meeting, Perfect Plastic outlined their eight-point strategy for dealing with supply chain disruption: 

1. Maintain exceptional communication with customers:

  • 1st to sustain trust. There is a lot of noise that this is all a conspiracy to raise prices. We must be ready to answer why?
  • 2nd to keep customers informed in real-time to give them the most time to react and adjust.
  • 3rd to coach customers to develop a plan B, and plan C for when their plan A is impacted. Constantly reminding them how important it is to supply accurate, timely forecasts to enable their vendors to order early enough to meet their needs.

2. Maintain an even higher level of communication and cooperation within the company:

  • Disruptions affect every department. Maintain exceptional communications with your "internal customers"

3. Manage vendor relationships.

  • Be very strategic in second sourcing vs. consolidating sources. If you are a small customer, the vendor with limited product is unlikely to accept your order over one from a major customer. (In today’s environment, having multiple suppliers for a critical part may result in never getting your orders fulfilled. Major customers receive the largest allocations.)

4. Increase inventory.

  • Amazon.com can no longer deliver everything in 1-2 days even when they promised to. JIT inventory management is not ideal in an environment where delivery cycles are unpredictable.

5. Develop alternative ways to produce the final product as various components become unavailable. Anticipate shortages. Have plan B, C, and D proven and ready to go.

6. Increase prices to reflect the higher cost of doing business.

  • Timely, reasonable, and well communicated.

7. Optimize the product mix, your vendors are.

  • Smart phone chips are more profitable than automotive chips, but both consume the same amount of foundry capacity. With a finite foundry capacity, vendors are prioritizing production of the most profitable chip. When your production is constrained by a component availability, which product mix using that component makes the most sense?

8. When pricing consider opportunity cost.

  • Consider, if you could only provide 80% of a customer’s requirement due to vendor allocations of his specific chip but the customer would be willing to fill the other 20% with a cheaper product. Your price to them for the cheaper product should reflect the loss of profit from using up capacity that would have been reserved for high margin product.

 

At all costs retain the trust of your customers, vendors, and employees. Reinforce the behaviors that communicate your character, your competence, and your caring.

Related Articles

The Gordian Knot - How You Frame a Problem Influences the Solution

Back in the last millennium, when I was a contract programmer, my customer asked me how long it would take to write a custom program he outlined for me. As I was getting ready to estimate the number of man-months and dollars, I remembered my Greek mythology and asked him what he intended to do with the program once I finished it. After he described the underlying problem, I told him I’d have his solution just as soon as I could drive over to CompUSA and purchase a readymade solution for $250. (A fraction of what a custom solution would have cost.) 

Read More
Why is the Status Quo so Hard to Change?

“It can’t be done.” so said Director of Operations, Wally as we discussed how to increase capacity in anticipation of the projected surge in demand in the next year. “Employees will never accept a fourth shift. They won’t be willing to change their schedules. They won’t. I asked them why and they told me.” 

Strategic goals are strategic because they change the status quo. Why is it so hard in practice to actually implement truly strategic goals? Any time you endeavor to change things there’s a risk involved and the potential for loss. Loss carries two to five times the impact as a gain. When there is fear of the unknown, people have a tendency to bunker down… hold their ground. That’s one reason why changing the status quo can’t be accomplished with the heroic effort of just one person. It takes the sustained effort of a team. 

Read More
A Startup Needs to Look Like a Startup.

From the writings of John Myrna

I joined Scientific Time Sharing Corporation (STSC) in December 1969 as a programming elf. I was in the Army, stationed in Northern Virginia, with excess time on my hands. In grad school I had adapted a prototype Fortran implementation of the programming language APL to run on the college’s new SDS Sigma 7 mainframe computer system. I fell in love with the language, so it was only natural to see if I could moonlight for one of the three startups that were commercializing the IBM version of the APL timesharing system. In school, my graduate advisor and fellow grad students were convinced that APL was the greatest invention since sliced bread but… “It’s a shame that it will never make it as a commercial success.” (The APL language was known for its extensive use of Greek and mathematical symbols, a major departure from “English-like” languages like Fortran and Basic.) 

Read More