6 Methods for Addressing Supply Chain Vulnerability

Editor’s Note: This post is updated from February 2023 to reflect the latest information and best practices so you can stay up to date with the most relevant insights on the topic.

Global supply chains are more interconnected—and more vulnerable—than ever before, causing businesses to rely heavily on their resilience to maintain operations and meet growing customer demands. But in recent years, a series of disruptions has shaken the stability of global supply chains. From the global pandemic wreaking havoc on “business as usual” to factors such as labor shortages, shipping delays, inflated costs, higher tariffs, and increased demand for goods, supply chains remain fragile. 

In an effort to be more efficient, today’s supply chains are designed to take advantage of economies of scale, which drive down costs and drive up revenue. However, the downside of this action is an over-dependence on specific countries for certain categories of raw materials and goods. 

But despite the risk, global supply chains have functioned remarkably well for over two decades. That’s why so many companies were caught off-guard by the disruptions in recent years. Because they didn’t fully understand their supply chains, including where key raw materials come from, they could not accurately gauge the severity of the situation in front of them, highlighting the importance of strong supplier data management.

In response to the challenges that persist—and to inoculate their businesses from future shocks—supply chain leaders, collaborating with their procurement specialists, need to implement strategies and take direct action to mitigate risk and prepare themselves for the new normal. As well, CEOs must reassess their balance sheets, focusing on key areas such as:

1. Cost reductions driven by “zero-based budgeting.”
2. Understanding the overall risk exposure of the company and its effect on supply chains.
3. Key factors that would disrupt business continuity.

Below are six proactive actions supply chain leaders can take to address the above problem areas immediately and over the long-term to fortify their supply chains.

6 Methods for Addressing Supply Chain Vulnerability

1. Fast Track Alternate Sources for Parts

If you are ramping up production or pivoting your product line, you need to assess your inventory quickly to identify where you have exposure for parts shortages, as well as where excess inventory exists. Do you have a clean, master parts list without duplicates? What about finding alternate parts or substitutes to take advantage of inventory you may have already? Are you too reliant on China for your manufacturing?

If you are able to identify potential alternates or substitutes in your inventory or supply chain, you can fast-track their approval, meet your demand, and ensure business continuity. If you are pivoting to a new product line, the sooner you can match engineering specifications and identify new sources of supply, the faster your time to market.

For example, many companies have repurposed the raw materials they already source to support entirely different—and often essential and mission-driven—production efforts. During the pandemic, some shifted their efforts to manufacture ventilators, face shields, or hand sanitizer to meet urgent public health needs. More recently, others have extended beyond their core product lines to pursue sustainability initiatives—such as turning textile scraps into new garments or reusing packaging and plastic waste in construction and consumer goods—highlighting the adaptability of modern supply chains.

2. Supplier, Distribution Exposure Assessment

You know where your key suppliers are located. And maybe you also have a pulse on their financial health. But do you have the same view across the board on all your suppliers and their subsidiaries? What about your distributors?

You need a complete understanding of your supply chain to assess your exposure, not just in terms of your suppliers’ factories but also where distribution could be affected. Enriching supply chain data with supplier balance sheets and factory closing/opening information could be very insightful in sourcing alternate supply options.

3.  Fast Supplier Onboarding

It’s likely that you will need to onboard new suppliers, from new geographies, in real time. Do you have the supply chain data you need to understand which suppliers meet your company standards for sustainability and corporate responsibility? And can you resolve supplier data in real time to avoid duplication?

As stated in the beginning of the article, the work that you’re doing now has extremely high visibility. You can’t cut corners when onboarding suppliers. Luckily, an efficient, real-time supplier onboarding process, powered by multiple third-party data sources such as Dun & Bradstreet, can ensure you don’t have to. But the question remains—do you have an efficient supply chain master data management (MDM) process for stitching all this data together?

4. Monitor Price Variances and Understand Root Causes

If raw material prices are changing rapidly and affecting supply chain movement, then the effect will show up in your bills of material cost. But do you know which suppliers provide you with the best prices, and how often are you leveraging them? For instance, has the cost of your oil-based byproducts remained the same, or do you need to take into consideration price differences and volatility?

If you are not monitoring your spend and do not know where your exposure is—single-sourced vs. multi-sourced, for example—then you could be exposed in certain categories with regard to price and supply.

If you have a granular view of your spend and are able to monitor it in real time, then you know what is driving your purchase price variance (PPV): seasonal, buy quantities, geography, or rare events. You can leverage this insight across your business units, factories, and product lines to react proactively and take the necessary steps to smooth out your supply and costs to best meet your demand.

5. Rethink Your Relationship with Distributors

Big companies can view distributors negatively and think of them as just “unnecessary and added cost.” However, as companies spin up new categories and materials, they still need partners with expertise in these categories and materials. Distributors bring that expertise.

Ask yourself: Can you identify your best distributors? Who has helped you during previous shortages or supply challenges? Who can you trust to help you source the materials you need from trustworthy suppliers? You need high-quality, trustworthy data to answer all these questions.

6. Procurement Resource Optimization

Not all of your spend categories are impacted equally. Category managers who focus on sourcing rare and volatile materials will need to stay laser-focused on their category so that they can secure supply when things return to normal and avoid shifting priorities.

Other categories, such as commodity electronic and mechanical components, may not require the same level of focus. Therefore, you can repurpose these category managers to focus on driving the new supply chain.

How to Address Supply Chain Vulnerability with AI-native MDM 

We hear from many prospects and customers that supply chain visibility, particularly in terms of insight into their supply chain data, is critical to ensuring that their supply chains remain resilient, even when uncertainties arise. Supplier master data management is an effective strategy that helps companies optimize sourcing strategies, drive cost savings, confidently onboard suppliers, and minimize supply chain risk. And underpinning this strategy is AI-native MDM.

AI-native MDM provides companies with access to reliable golden records so they can know and verify their suppliers and deliver better, more sustainable sourcing strategies. With a 360-degree view of supplier records, companies gain critical visibility into details like corporate hierarchies, empowering them to fully understand their vendor landscape, avoid overreliance on specific suppliers, negotiate stronger contracts, and achieve cost savings through a more strategic sourcing approach.

Further, AI-native MDM provides critical insights that empower supply chain leaders to: 

• Diversify their suppliers
• Spot supply chain vulnerabilities and risks
• Streamline logistics
• Predict customer demand
• Avoid shortages and overstocks

To learn more about how AI-native MDM can address supply chain vulnerability and supply chain data management, download our ebook “Golden Records 2.0: The AI-Native MDM Advantage.”