With the increased popularity of Lean and Just-In-Time Manufacturing Processes over the last 30 years the dependency and popularity of using single and sole sourcing also rose around the world. It is understandable why this happened. Coordinating and managing just in time deliveries is much easier using one vendor compared to using two or three vendors for the same component. There are also other advantages of using a single/sole source for an item. A specific vendor can offer unique quality, concentration of purchasing volume can provide leverage during price negotiations, and supplier management and accounting activities are less expensive and less complex when you have fewer vendors.
But, the COVID-19 Pandemic has laid bare the biggest risk of making such decisions. Production plants around the world have had to shut down caused by a lack of materials and parts. In 2020 for weeks the automotive industry had to cut production because of supply chain constraints that resulted in dealer inventory shortages just as new car demand was surging. A CNN Business headline stated in February 2020, “You Can’t Make a Car With 99% of the Parts…”, and a New York Times January 2021 headline read, “Lack of Tiny Parts Disrupts Auto Factories Around the World”. As we all know, these supply shortages were not unique to the auto industry and the reliance on a single and/or sole source aggravated an already bad situation.
A well thought out, documented, regularly practiced supply chain risk review process, where risk reduction opportunities are identified, justified, resourced, and acted upon will generate huge benefits for an organization when the next crisis comes. You can be certain that industry is going to be challenged again and again by supply chain disruption events regionally and globally generated by the effects of climate change.
In response to the supply chain havoc that the four Category 5 Atlantic Hurricanes caused in 2005, I helped implement and run an annual supply chain risk review process at the Philips Medical site where I spent most of my career. This cross functional process, that was incorporated into our overall supplier management process, did a lot to reduce our supply chain risk over years post implementation.
Perhaps one of the silver linings of this Pandemic for industry will be the recognition by leaders of the need to implement robust supply chain risk review processes that will help us manage the next crisis that is sure to come knocking at our factory doors.
If you would like to start a discussion with me on this topic please don’t hesitate to reach out.