The COVID Pandemic has exposed several shortcomings in company’s global supply chain and sourcing structure. They range from overexposure in certain sourcing countries to long term disruptions in the supply base and logistics operations. Addressing overexposure requires a more balanced approach of capacity sourcing across multiple source countries. However, to mitigate the risk of long and volatile lead times, another dimension needs to be considered: the mix of near shores, onshore and offshore sourcing capacity. For cost price reasons company chose to stay offshore, however, unbalanced inventory and lost sales due to the supply chain disruptions can only be mitigated by a different sourcing strategy. Cost price cannot be the only driver.
Compliance first, then competitive advantage
In addition, regulations are changing in markets concerning sustainability practices. Companies will be required to declare and proof material content, environmental, working, business and supply chain practices. Enabling sustainable sourcing practices requires a review of each supplier in the company’s value chain and ensuring that operations, materials, and products conform to the increasing level of requirements by both consumers and governments which impacts deeply on how to manage risk and traceability. This in turn requires the IT system to be updated to deal with this level of risk and traceability management.
How Supply Chain Issues Are Shining a Spotlight on Sustainability
Knowing that more than 90% of our raw materials are still coming from mother earth, the changes required to address both sourcing strategy and sustainability are a perfect opportunity to review the very basic assumption of how value chains have been created for many decades. The basic structure of global value chains is currently of a linear nature. Given that company’s need to review their sourcing strategy and start embedding sustainability practices into their value chain, the transition to a circular value chain is a logical step. Starting with product development, sustainability practices must be adopted to minimize the use of “new” materials and maximize the use of “old” materials. Suppliers and their capabilities need to be selected to enforce the reuse of materials and resources; near and onshore suppliers also minimize their carbon footprint by going along with shorter lead times. It is time to change!