Supply Chain Strategies

Supply Chain Strategies: In 2022 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. 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.

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