Pandemic Prepared! 8 Steps to Building Supply Chain ResilienceSupply Chain Risk
Sajid Kunnummal, Vice President and CPO at Navistar, was interviewed by Philip Ideson from Art of Procurement to discuss the impact of the Covid-19 pandemic on Procurement. From this discussion, we compiled a list of 8 critical supply chain management activities that to improve, build, and maintain supply chain resilience now and in the years to come.
As we continue to adjust to new business cycles, 2022 offers an opportunity to learn how to incorporate lessons learned from 2020 to establish a new supply chain and customer experience strategy.
When the crisis hit, Procurement as a function was suddenly in the hot seat, and it became the driving force for business continuity. In fact, the pandemic spurred enormous growth and expansion for Procurement, while helping uncover hidden weaknesses in procurement processes and procedures. Procurement teams had to work closely with suppliers to find creative ways to solve problems, and they instantly realized the benefits of transparency in their supply chains and supplier risk management for business continuity in times of crisis.
While many businesses suffered severe setbacks and disruption as a result of the pandemic, some organizations were able to pivot quickly enough to remain operational. One such organization was Navistar, a leading manufacturer of commercial trucks, busses and proprietary engines that recently participated in a series of CPO interviews conducted by Ivalua and Art of Procurement. Having already done the work to build resilience into its supply chain strategy, Navistar’s procurement organization was better prepared than most to weather the Covid-19 crisis. In fact, they experienced just two weeks of disruption before they were up and running.
But building an agile, resilient supply chain doesn’t happen overnight; it requires forethought and planning. Navistar had already been developing a supply chain risk management program and were in the midst of executing digital transformation initiatives when the crisis hit. Fortunately, we can learn from procurement leaders such as Navistar, and leverage their lessons learned to prepare for what the future may bring.
Here are eight critical activities that can help procurement organizations build and maintain chain resiliency in a post-Covid-19 world:
- Work to achieve 100% supply chain visibility. According to Sajid Kunnummal, Vice President and CPO at Navistar, supply chain data visibility is the number one driving force behind creating resiliency. “It doesn’t matter whether you have one supplier or 10 suppliers, multitier visibility into the supply chain and your ability to quickly respond to changes and potential risk is the best way forward,” he said. Why is visibility so important? Because Procurement teams are now expected to manage a lot of moving parts — from supplier relations to spend, risk, compliance, contractual obligations, contingency plans and more — and a lack of visibility inhibits their ability to do any of that effectively. Visibility across every aspect of the supplier relationship management is essential to making informed decisions or seizing opportunities, and it’s instrumental in speeding up the procurement process, reducing costs and collaborating with suppliers to better meet the needs of the business.
- Focus on digital transformation and adopt procurement technology. According to Kunnummal, digital transformation and the use of new procurement technology are essential to streamlining and automating processes, and providing the visibility into the supply chain that’s so critical for resiliency. Navistar had a jump start on putting robust systems in place, but their suppliers didn’t. “Now as we implement those systems more comprehensively, we’re pushing suppliers to adapt them, as well,” Kunnummal said. However, adopting new technology can be a huge challenge, as many procurement professionals have been in the industry for 20+ years. The good news is that as a result of the pandemic, people may be more willing to try new ways of doing things. “They see the value proposition,” Kunnummal said.
- Create speed and transparency. Digital transformation will lead to the evolution and digitization of key procurement processes, from source-to-pay. But according to Kunnummal, to achieve true supply chain resilience and maintain it over the long-term, processes must emphasize speed and transparency, and that requires leveraging platform-driven workflows that compliment and standardize investments in process re-engineering. Making processes transparent enables everyone along the supply chain to react quickly.
- Be proactive to mitigate supply chain risk by understanding your suppliers. During the pandemic, Navistar learned quickly that understanding your suppliers at a deeper level is critical to resiliency. “About 10% of our suppliers were impacted by this crisis and experienced financial issues,” he said. “Their supply chain was just broken, and there was no way they could get material to run their plants. But because we were proactive, we were able to build inventories ahead of time so that we had enough material in the pipeline before the crisis really hit peak.”
- Balance supply chain risk and resilience with ROI. Procurement teams often make decisions based on spend, but risk should also be a factor. For example, saving 10% by buying supplies in India or China must be weighed against the potential risk of supply chain disruption in case of a crisis like Covid-19. “People rarely look at the cost of potential supply chain disruptions, but the cost of the disruption could wipe out any savings,” Kunnummal said. “It’s really important to take this into consideration as part of your TCO calculations.” Kunnummal added that redundancy is now more important than ever. “I’d love to have two suppliers for the same part, but there’s always a cost to having an alternative source,” he said. “There’s also the cost of setup and qualification, and without the right technology in place, it can take years to get another supplier qualified.” Having a platform in place that offers a robust supplier management solution can help organizations ensure they have options.
- Simplify approvals with clearly defined roles and responsibilities. When procurement organizations fail to define roles and responsibilities, approvals become problematic — and slow. Strategic sourcing professionals may end up doing tactical work, as well. Kunnummal said agility hinges on this essential task. “In most companies, decision making is very, very painful — and that limits agility, especially in large companies,” he said. “At Navistar, we are taking a second look at how we delegate responsibilities, and giving people more responsibilities and the authority to make decisions, which we believe will increase our agility quite a bit.”
- Set expectations with suppliers. Navistar’s procurement team sets clear expectations for suppliers — and it’s important to constantly re-evaluate supplier agreements and make necessary adjustments. Perhaps 30 days of inventory isn’t enough in times of crisis, and terms should be updated. Teams should also revise expectations for tier-two and tier-three suppliers, shipping and freight partners. For example, Kunnummal referenced a supplier claiming “force majeure” to hold companies responsible for freight costs, even if disruption prevented goods from being shipped. Setting expectations ahead of a crisis is critical to reducing risk, avoiding liability claims and mitigating potential losses.
- Get the right talent in place. Resiliency in a post-Covid world will depend largely on talent acquisition — but recruitment has historically been challenging in an often misunderstood field. “Not many people want to come to Procurement because they feel it’s a low-end job with no career opportunities,” Kunnummal said. “They don’t realize the importance of procurement and the value they can bring to the table.” It’s critical to communicate how the function has evolved and the impact procurement professionals can have on a business’s success, particularly in a post-Covid world. Navistar is elevating the position to candidates by making them aware of the various aspects of Procurement beyond sourcing and category management.
Creativity Is Key for Success in the New Normal
Creativity will be critical as procurement teams continue to adapt to the current environment, but for companies like Navistar, that’s an exciting opportunity. “The willingness to share technologies and look at creative ways of doing things is much higher than it is under normal conditions — and that’s actually enhanced collaboration with our suppliers,” Kunnummal said. That collaboration leads to more innovation, greater efficiencies and a higher-performing, resilient supply chain that can weather the challenges of a crisis like Covid.
Related Content: How to Assess Potential Risks to your Supply Chain