It is a legitimate question on supply chain security – How important is continuity of supply to you? How far would you go?
Would you commission an act of aggression, if that was the only way of assuring supply chain security to keep the supply lines open?
Would you go further than an act of aggression? How about a regime change in the sole supplier of a critical commodity? None of these things have been out of realms of possibility in the past.
It Is A Million Dollar Question
Business people live a far more genteel world today. Yet supply chain security and continuity remains critical.
If you were an oil refinery, giant chemicals plant, blast furnance steel mill, you would instantly know what I am talking about. You would read the rest of this post with a lot of careful thought, when almost everything I say below is coursing through your blood from your day-to-day experience.
For the rest of the folks, this will make very little sense till you carefully read it. Once it filters in, it will help you figure out why you overpay for so many things such as transportation and logistics which keep your supply lines open.
Most importantly, it will help you figure out what to do about it to stop overpaying. You will discover the golden rule ‘the go-to club rule of playing golf’ which will help you in business.
Continuous Flow Processes Demand Constant Supply
Suppose you were running a large scale continuous flow process plant – such as the ones mentioned above. Paper mills, chemical plants, fertilizer plants, explosive plants, oil refineries, sugar mills, glass factories, and dozens of other processes that I have had the privilege of serving in my 35 years career, had one thing in common.
Once you start the process, you would want to keep it going till the next planned shutdown – which could be months, or even years away.
The first thing they tell you when you start at any of these plants is how their plant is so unique and cannot be shut down suddenly because the costs and potential hazards of doing so are phenomenally high.
It is a little bit like taking a super tanker at sea going full steam ahead and slamming the engines on full astern. You have to actually do it (and I have seen it done on my ship to test it out) to see the forces that come into play at that critical juncture.
If the propeller does not spin out of control, you are likely to rupture the propeller shaft, engine seating, rudder plate, boiler or some other part of the vessel.
Flow State Is Critical
For the heads of procurements in such companies, the golden rule is this – no matter what you do, make sure that the plant is never starved of the feedstock. No wonder, they start getting nervous if they do not have a signed and sealed contract two and half year in advance!
Now imagine if a new CFO brings in a very successful head of procurement from his previous company – a job shop or a projects based company. Here, last minute procurement is a rule, rather than the exception.
Because, there are so many variables such as weather, contingencies, critical path performance which throw out the plans the last minute. To a large extent that is the environment we faced out at sea too. No matter what you long term plans say – every morning you have to get up and make a fresh plan!
All Operations Are Not Created Equal
The requirements for continuity of supply is still there – but not as critical. Project delays can be made up for. The thinking of the supply chain team is diametically opposite in these circumstances.
In fact if you look at theFLOW MATRIX figure given below (which is adapted from an operations management MBA textbook) – you will notice an entire continuum of operational characteristics and their corresponding supply continuity requirements:
That is the reason why a head of procurement from a project flow operation may not succeed in a continous flow operation. While everyone will stress to him how important it was to keep to operation running, it will never dawn on him that being prepared has an entirely different meaning in this world – having a supply contract sealed and signed 10 quarters in advance!
If you want to read a story of how continuity of supply chain can make or break an industry, read the story I relate in this article. It shows a visceral example in a batch flow/line flow operations – which is where bulk of supply chains live.
In fact how far anyone would go to assure continuity of supply depends entirely on where on this martix did they cut their teeth in business world. Those on the lower right side of the matrix would have a strong preference of going way out on the limb. While those in the left top corner will prefer agile, light mind-set.
One thing which runs common across the entire continuum is transportation and logistics.
I raised the question earlier: why you overpay for so many things such as transportation and logistics which keep your supply lines open?
The reason is that for everyone on the continuum, logistics is part of the critical path to assure continuity of supply.
Even for a job shop, when an aircraft is stranded on the ground (AOG) or ship in a port, getting a part to the craft is critical.
For a continuous flow process, shipping is critical too – the feed-stock is no use till it is brought to the factory
Does that mean you are always condemned to pay a premium price for shipping?
Logistics Is Critical In Every Case
If depends on how sohpisticated you understanding of shipping market is, and how well you engage with the shipping lines. Most buyers seem to know, at the most, 3-4 modes of generic market engagement, which they apply to the shipping markets as well. In simple terms they flip between spot purchase on one end to strategic sourcing for 3 years or more. Neither of those approaches work in practice.
In my report A Handbook Of Freight Management Secrets – Savings, Service And Supply Chain Continuity, I outline more than 9 different ways of shipping market engagements that might be suitable depending on the circumstances. It is based on the ‘smile curve’ for the shipping industry, which is given below:
It will help you figure out what to do about it to stop overpaying.
And, you need to discover the golden rule ‘the go to club rule of playing golf’ which will help you in business.
When you play golf – they advise you to have a go-to club. A golf club (bat) to hit the ball every time you are unsure of what to hit. Something which is a back up for any and every situation.
In logistics too – you need a back-up which will get you out of trouble in sticky situations. Otherwise, no matter how good you are as a buyer of commodities, your feed-stock will languish far from the factories where you need it.