Trends

The Locus of Control and Supply Chain

How to Take a More Proactive Approach to Overcoming Supply Chain Disruptions

By Paul Tibbert, CEO of GRID

The Locus of Control is a concept that defines the degree to which people believe that they control events in their lives, as opposed to external forces (beyond their influence) controlling their destinies. I’ve been thinking about this concept a lot lately, especially in the context of the ongoing issues that manufacturers and service providers are experiencing relative to the supply chain.

It came to mind recently when I went shopping for a part to repair a broken furnace. Due to reported disruptions to the supply chain, I was informed that the replacement part wasn’t available. When I investigated the possibility of replacing the whole furnace, I was again informed that the entire product was out of stock. A third attempt — considering the purchase of a competitor replacement — was also met with the same story: it required an adaptor, which, of course, isn’t currently available. No luck, no matter how hard I tried.

I wondered: How much longer can companies survive like this, unable to serve or sell to their willing customers? I also wondered how long all of us can simply throw up our arms and defer to an external Locus of Control viewpoint that assumes there is nothing we can do about downstream supply chain interruptions. How long will our customers be so forgiving, before they begin to more proactively pursue alternatives to our commitment to meet their needs?

My conclusion? It’s time to take back the Locus of Control — not just for today, but for the future.

High-Availability vs. Just-In-Time

I think those in the service sector of manufacturing are the ones finding it the most difficult to cope with distributor and supplier issues, even more than those that produce and sell products. A manufacturer that builds and sells its own products may have a scintilla more control over their ability to fulfill orders, but certainly not entirely, as we’ve seen with the chip shortages that have prevented OEMs from getting new cars onto dealer lots.

But those in the service industry — like the company who was parallyzed in its ability to service my broken furnace — are seemingly crippled by external forces: can’t get the part, can’t get a replacement, can’t serve the customer, no matter his willingness to pay. But no longer can we just leave it into a distributor’s or supplier’s hands to generate revenue.

I find an interesting parallel between current supply issues with methodologies we software programmers have applied to the products we develop and implement. The concept of “high-availability” describes the steps we in IT take to protect against software or hardware downtime. For years, we’ve been building in redundancy and backup systems so that, should a disruption in “supply” occur, another device or program kicks in to prevent any data loss or downtime.

The manufacturing industry, conversely, has been moving the opposite direction for years now. Rather than build in redundancy and backup into inventory and supply, the industry has instead been adopting “lean manufacturing” and “just-in-time delivery” as its modus operandi.

And for good reason. There is extra cost built into anything other than lean manufacturing. Inventory sitting unused in warehouses is a literal cost, as is additional machinery that may sit idle during slow production seasons, not to mention human capital that isn’t performing at peak efficiency. That extra cost can be a drag on profitability. And when that additional inventory is being financed over time, costing us interest on the investment we already made, it isn’t hard to feel like we’re being “doubly” charged for our investments in supply, materials and production.

But in the software world, that additional cost has been baked in as an acceptable tradeoff against the alternative — downtime that brings costs far greater and practically impossible to predict and account for, as opposed to clearly understood investments that can be budgeted for, accounted for in pricing strategies, and spread out over longer life cycles. 

Here we are, though, in the manufacturing and service industries, experiencing “downtime”…and it’s costing us. Big time. Maybe it’s time to consider baking in a little more “high availability” into our methodologies. This doesn’t mean moving the pendulum 180 degrees away from just-in-time delivery and lean manufacturing…just building in some protection against, not only the current state of the supply chain, but to be better prepared for the next unforeseeable disruption.

How to Achieve “High Availability” in the Physical World

Which brings me back to Locus of Control. I believe manufacturers, suppliers and service entities have more control over their own supply-chain fate than they have been willing to accept since the Pandemic sent so much of the supply chain haywire. Here we are, going on three years in, and we are still seeing supply chain issues persist. It’s high time for some high availability in the manufacturing supply chain.

Here are four steps I would recommend to anyone looking to achieve more control over their supply chain fates:

1 – Build more intelligence into supply analytics.

The first thing I would do, if it hasn’t been done already, is modernize the inventory and supply systems. Software should provide a clear picture of historical drivers of demand (up and down), as well as learn from history to project future increases in demand or supply shortages. Such a system should integrate the full supply chain and sales/delivery data spectrum, so that everything can be aggregated, cross-analyzed, and overlaid. Only seeing that complete picture, will both the software and its users be able to predict the next disruption event. You should also be able to pull data from your suppliers and distributors, so if there is a weak link down the line somewhere, you’ll spot it and can react accordingly.

2 – Establish a monitoring and reporting system for perceived future threats to the supply chain.

Next, a plan and technology should be put in place that can automate the appropriate reactions to what the data is trying to tell you. This may be a simple notification so that humans can read and react to, as well as automatic triggers that kick in according to predetermined protocols you’ve established (such as those in the next step).

3 – Build redundancy and backup planning into the supply and inventory strategy.

Most importantly, devise your backup plans, systems, and maybe even some new relationships with supply partners or industry peers, now, so that they are ready to be put into motion the moment the next disruption occurs. This could be things like shifting inventory from other plants, warehouses or retail locations; or establishing backup distribution pipelines with additional distributors, even if they’re not your go-to sources when everything is running smoothly; or even establishing partnerships with non-competing peers within your industry vertical. Perhaps a shortage you are experiencing at a given moment can be countered by overages at other similar companies, and vice versa. Perhaps a working collaboration can be established so that neither of you suffer the worst the next time there is a choke in the system. Get creative about how you source parts, materials and supplies, beyond just your own direct supply chain.

4 – Reconsider investments in uptime as true investments, not merely costs.

There is a new happy medium, somewhere between just-in-time and high-availability that modern manufacturers and service providers should explore. The mindset that “extra” inventory is costing you needs to be tempered against the new realities of things like pandemic, fuel shortages, global unrest, and all of the other drivers of supply chain disruption that converged overnight. New cost/investment considerations should be entertained, if they can prevent critical failures from occurring. In both the short term and the long run, it might be more costly to have the production lines or the fulfillment centers shut down for a significant period than it would be to build in redundancy costs into your overall operating expense budget. Excess inventory might look like a cost entry on a spreadsheet, but an investment in time and energy to maintain the integrity of your supply chain might look more like a strategic allocation of resources in the boardroom.

Consider these issues of Locus of Control to protect your profitability from the next inevitable event that disrupts the supply chain, the way current events have in recent years. Measures such as these are both remedial against current realities and proactive investments in a more productive, profitable business in the future. It’s possible that high-availability can be your competitive advantage and differentiator the next time unforeseen events put obstacles between you and your ability to serve and sell to customers.

If you’re highly available when your competitors are not, your potential customers will no longer be out of options the next time a part can’t get ordered or delivered. You will be the alternative I was searching for and was forced to settle for nothing and wait it out. That competitive advantage may mean increasing your market share while others are shrinking. And at least some of that competitive conquest will be permanent. Maybe all of it.

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