Are Multiple Supply Chain Networks Important? (A PI Q and A)

I recently posed a question on the importance of Multiple Supply Chain Networks which, within a matter of several hours, elicited 14 responses from around the world.

And while the majority of respondents felt that the findings from an ISM, CAPS and AT Kearney 2006 report were not indicative of general market sentiments, it nonetheless has proven to be an issue that is of considerable interest to supply chain professionals and academics.

As a result, over the next week I will share the answers as well as corresponding discussion tracks starting today with the response from a Senior Director Supply Chain Operations in the Apparel & Fashion Industry in the United States.

PI Question:

A 2006 Report titled Succeeding in a Dynamic World: Supply Management in the Decade Ahead made the following statement:

“Designing and operating multiple supply networks to meet the needs of specific market segments–supply chain innovation and the use of multiple supply chains will be important to future revenue and market share growth.”  

Based on your own experience is this an accurate assessment?  If yes, why? I f no, why?

Network Member Profile:

Senior Director Supply Chain Operations, Global Markets (Fasion & Apparel Industry), U.S.A.

Reader Response:

I agree.

Multiple and supple Supply Chains that can be adopted quickly mitigate the risk associated with global business. Absolutely!

Unanalyzed loyalty, or myopic reliance on a specific supply chain process or partnerships is less efficient for all products that a global business must produce to meet their growth demands; specifically, because, typically the chain is designed around either trying to meet all products needs (in the case of Apparel this is the biggest mistake we make- one chain for all brands), or geared towards one products exceptions (automotive innovation is the example here). This creates unneeded pathways that add time, cost, or non required testing or analytics to individual product demands.

In addition any global company is exposed to the speed in which governments are adopting and dropping restrictions or regulations and the growing socio-political instability of both the raw materials and manufacturing markets.

Multiple Supply chains that can be adopted quickly as contingency routs or sustained individuated paths allow a company to respond to their consumers’ ever increasing demand for quality and cost. Ask GM, Dog food makers or Mattel.

PI Follow-up Question:

Interesting observation.

In the example of Mattel specifically, (and I assuming you are talking about the recent spate of product recalls), how do you believe the Multiple Supply Chain concept could have averted the situation?

Reader Response:

I believe what happens with “ancient” or “loyal” (older than 5 years) Supply paths is that the company becomes more and more reliant on the partnerships that make up the path Each person in the system becomes somewhat lazy (if you will) the vendors, product auditors etc. realize their relationship is exclusive or critical to the company and either take risks or loose focus.

Having multiple supply chains forces “free market’ competition, provides the Company with contingency so they take a hard stance on quality, or push for better costs, allows for spontaneous freshening of the Supply Base, and worst case allows a company to make an immediate change when a problem is identified. If double digit percentage of your product is traveling through one set of partnerships there’s too much risk involved in changing A single supplier or a single path- they have deals with your other partners based on sustained volume, or legacy relationships, your cost structure is built on those relationships, your speed to market metrics are modeled against those paths. I believe what happens is it’s easier to make concessions because the risk of holding fast to product integrity standards is greater than the risk of bad quality. Until, of course, it’s too late. I think that’s the flaw of the chain not some large corrupt entity making planned obsolescence, or calculated risk, decisions.

A simpler example of this is with moving finished product. Having one exclusive contracted relationship limits you to certain lanes, ports and sail times. Having multiple relationships, or at the very least creating a relationship with a broker who manages those rapid switches allows for flexibility, adding time back into the Manufacturing calendar or back into the sales cycle, which in some cases may be more pennies per product but the time saved factor makes it more cost effective.

Managing multiple chains, on-boarding new paths, grafting new sources to existing branches, or amputating chains that are not working should be a constant focus even if you make ball-bearings it’s the only way a company can stay competitive.

PI Follow-up Question/Closing Commentary:

Are you saying that the Mattel situation was the result of attempting to balance the convenience or comfort of dealing with a known entity versus the potential risks associated with the lowering of standards?

PI Commentary:

While Mattel undoubtedly recognized that this created potential risks in terms of product quality, it was a calculated risk that under the circumstances they were willing to take. Unfortunately it came back to bite them, as the risk of delivering an inferior product in this instance was greater than a) maintaining the previously established standards which presumably would have prevented the inferior product from being shipped in the first place and/or, b) having to go through the process of establishing alternative supply channels.

The questions this raises are as follows:

1. Were Mattel’s options to develop an “alternative” supply channel limited as a result of indigenous factors?  For example, the University of North Carolina at Chapel Hill uses coal to meet their energy requirements. The primary delivery mechanism for coal is rail for a variety of reasons including the prohibitive costs associated with other modes of transportation such as ground. Unfortunately, the options relative to the selection of alternative rail carriers is severely restricted, thereby forcing UNC to accept pricing increases they may not otherwise have agreed to had there been viable options available.

A similar scenario existed with Abbott Laboratories as their (pill) bottle manufacturer who, after informing them that there was going to be a per unit price increase, refused to let Abbott “stock-up” under the outgoing cost model. Abbott’s hands were tied in that the range of potential suppliers that can provide the required product is relatively narrow. I refer to this as a “forced” strategic alliance.

2. Alternatively, was the Mattel supply chain hierarchy’s decision to lessen quality standards linked primarily to the desire to maintain the status quo (re comfort) thereby potentially clouding their judgment in terms of the true level of risk relative to poor quality? And if this is in fact the case, was there supporting data (re a history model etc.) which would have at least helped to clearly identify a “reduced” risk therefore justifying their decision? This is a “self-inflicted” alliance.

These are important questions, especially in the area of cluster development on both a domestic as well as international basis. Especially when recent studies suggest that particular regions of the world will develop core cluster competencies that are not likely to be available elsewhere.