5 Ways to Prepare for Sovereign Supply Chains
With all the supply chain disruptions happening around the world, some companies and governments have started talking about sovereign supply chains. But will sovereign supply chains solve supply chain woes?
The short answer to that question is: certainly not.
The longer, more nuanced answer was the subject of a recent conversation between Supply Chain Now hosts Scott Luton and Greg White, Supply Chain Insights Founder Lora Cecere, and VP of Supply Chain Strategy at Coupa Dr. Madhav Durbha. The speakers explored what sovereign supply chains are, whether or not they are feasible and effective, and what organizations and governments need to do to better prepare as a shift toward sovereign supply chains occurs.
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But first: what are sovereign supply chains?
According to Cecere, the best definition we have is the Australian definition, which refers to the “last assembly” of the product. But beyond that, as the other panelists pointed out, the definition gets fuzzier as we talk about inputs and supplier tiers. For example, “Made in America,” really only means “assembled in America.” There are a few instances where a product is made entirely in one country, but that’s rare. And, as the recent infant formula shortage has shown, a sovereign supply chain alone does not prevent disruption.
What’s driving the move toward sovereign supply chains?
The panelists agreed that a combination of factors is driving this shift. In some cases, the decisions are political. In other cases, certain industries are driving the transition in an effort to reduce the concentration of supply in some regions, along with other decisions supply chain leaders are making.
How should companies respond and prepare?
In most cases, organizations still plan their supply chains around best-case scenarios without creating contingency plans. Cecere discussed how the traditional global supply chain has operated under the assumptions that governments were rational, variability would be low, and logistics would always be available. But even before the pandemic, the realities underpinning these assumptions were changing.
Here are some key takeaways from the discussion:
- It’s time to scrap the ceteris paribus or “all things being equal” mentality most leaders learn in supply chain science courses. As White said, “All other things are never equal. A best-case scenario doesn’t exist.” Organizations must acknowledge that variability in lead times, labor, inputs, and other factors will always be an important part of the picture.
- Acknowledge risks. According to White, you can’t plan for better margins if you’re overlooking the risks in your supply chain. Especially if (and when) something goes wrong, ignoring risks can end up costing more than planning for contingencies and offsetting risk.
- Understand your supply chain. Cecere said that only about one-third of companies understand their second and third-tier suppliers, but it’s essential to understand all tiers.
- Embrace optionality and start (continuously) designing. Dr. Durbha advised supply chain leaders to plan for disruptions and recognize that supply chains are not just about cost and services, but also about risk, resiliency, and sustainability. “There’s no substitute for good planning,” Cecere said. Yet so many organizations still rely on Excel spreadsheets, despite the availability of more dynamic and powerful tools.
- Engage with finance and procurement for better demand planning. When you model demand scenarios and start planning, consider demand variability, and the complexity of your suppliers. To turn effective design into reality, metrics need to be aligned across departments. Dr. Durbha discussed the importance of finance, procurement, and supply chain working together. “The CFO has to be your best friend,” he said.
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