Strengthen your global supply chain with ally sourcing
Companies with global supply chains—and these days, that means most companies—are exposed to global risks. Pandemics and armed conflict, limited water and energy supply, tariff disputes, economic downturns, strikes, and a host of other potential problems weaken and interrupt supply chains. While risks are unavoidable, most can be contained. One way to strengthen your global supply chain is through ally-sourcing.
Ally-sources, which might be located on-shore, near-shore, and off-shore, share your political, environmental, social, and economic views. They might, for example, be more likely to partner with you on reducing carbon emissions or have tariffs and export/import laws that are favorable to your products. They might have a similar tolerance for risk and understanding of quality; for example, in their concern for safety and their product testing requirements.
Data analytics identify stable countries that meet the criteria you establish; supplier optionality and a risk assessment narrow the field of potential suppliers in those countries; and a mature procurement function coupled with a sales, inventory, and operations planning (SIOP) process ensure the long-term ability of your supply chain to resist and bounce back from risk. But first, you must clarify your objectives.
Engage multiple stakeholders in the ally-sourcing discussion on objectives
Your supply chain is a continuum: decisions made upstream affect everything downstream and vice versa. If finance pushes procurement into negotiating lower prices with a key supplier, you may drive the supplier away or into bankruptcy. If engineering insists on keeping a legacy supplier despite that supplier’s continual inability to deliver on time, then your own OTIF reputation suffers through no fault of operations or logistics.
Your criteria may range from the practical—such as a shortened supply line—to the socio-economic and the political. You may have different objectives depending on the country, the types of supplies, or your customer expectations.
When planning, sales, procurement, operations, and logistics are included in determining the criteria and objectives for ally-sourcing, you build a stronger business case for the ally-sourcing decisions you make. You gain visibility into the entire plan-make-buy-move supply chain and have a better understanding of the trade-offs.
Identify cooperative, stable countries that support your key beliefs
The goal of ally-sourcing is to decrease your risk by allying with suppliers in like-minded regions or countries.
An ally source should be located in a region or country that:
- Shares your key political, social, economic, and environmental beliefs
- Is willing to collaborate with your home country on tariffs, logistics, and other political, social, economic, and environmental issues.
The more you know about other countries, the more likely you can find alternative geographic locations. A failure to seek alternatives can be costly, not only in terms of geopolitical risk, but also in reducing the incentive for suppliers to negotiate, make their pricing visible, and meet your societal and environmental goals.
Using an analysis similar to a 2x2 matrix, you can pinpoint the geographic areas that best match your philosophy. For example:
Identify specific suppliers who meet your criteria
Once you locate a suitable geographic region, you need to find those specific suppliers who:
- Share your own company’s philosophy on measures that are critical to you, including safety, sustainability, governance, waste reduction, and regulatory compliance. There are various sources for this information.
- Meet your commercial and operational objectives, including quality standards, throughput, willingness to negotiate, and potential for growth.
In addition, you must avoid moving all your suppliers from one geographic area only to concentrate them in another, single geographic area. Using the example in the previous matrix model, if you started with all your suppliers in Country A, you might add or replace some suppliers with new suppliers in Countries B and C. You would not move your entire supply chain into Country B because then you would incur the same risks you are trying to avoid. This is also known as a +1 sourcing model where companies primarily purchase from one country but add one other region, often a developing country, elsewhere on the globe.
Supplier optionality, coupled with a risk assessment, identifies individual suppliers that, among other criteria:
- Offer the quality, throughput, and potential you are looking for.
- Have financial stability.
- Have the capacity you need and expect to need.
- Have an adequate and capable workforce.
- Will help solve your current sourcing challenges.
Although +1 sourcing and supplier optionality have many benefits, they can increase complexity because laws, market dynamics, and business practices vary in different locations. Thus, a thorough assessment should be made to find the optimum balance of risk and reward.
Ensure long-term benefits while improving relationships and communication
Strategic procurement can be developed through a six-step approach that includes data analytics, implementation design, supplier qualification, supplier selection, supplier relationship creation, and supplier relationship management. This process matures the procurement function; it moves a purely transactional, tactical function into a proactive and strategic function. Procurement leaders understand supplier optionality and negotiate to leverage the value of supplier agreements. They track and monitor risks and opportunities, and work closely with sales, planning, operations, and logistics ensure the complete symphony of stakeholders works well together.
Ally-sourcing is based in both analytics and strategic initiatives. It reduces your company’s exposure to global risks, while strengthening both internal and external relationships. Ally-sourcing uncovers opportunities and pitfalls in your global sourcing approach while identifying regions/locations who can help you to meet your core social, political, and economic objectives.