5th anniversary of pandemic – and another global supply chain disruption

For the 2nd time in just 5 years, the world is potentially experiencing another major supply disruption – this time in the form of a global trade war.

Like the pandemic, the threat of a change in the global tariff environment underscores the importance (and value) of maintaining flexible supply chains and strong risk management practices in manufacturing and procurement.

We suspect that you are already inundated with outreach from the many advisory services you know (and some you don’t!) and we debated whether we should add another one, especially considering that negotiations may materially reduce most of the threatened impact.

Ultimately, we decided that the potential operational and financial risk associated with the situation merits sharing a few suggestions from Saphineia’s Pat Mitchell, MarsWrigley’s former Chief Procurement Officer, as Pat has managed through many major supply disruptions over this career.

We hope you find these recommendations helpful, not only in the coming days, but going forward as well as they represent sound approaches in the face of disruptive events:

1. Don’t take for granted what you are told by your suppliers. Validate it. Our experience is that disruptions in upstream supply chains become reasons for suppliers to pass on increases in costs, warranted or not.
2. Require your existing suppliers to break down and detail to you all elements of their costs so that you are clear on the ‘real impact’ of the disruption (in this case tariffs). Ask them what they are doing to find ways to offset the increases. These global impacts affect everyone, and you shouldn’t have to bear the full brunt of the disruption, whatever it is.
3. Whether you have formal negotiation strategy frameworks in place or not, sharpen your negotiation skills and approaches to your suppliers. You should view disruptive events such as tariffs as a negotiable element of cost and not as a given. Challenge your suppliers, regardless of your relationship, as their interests are to maximize their own profitability.
4. Use this time to better understand your supply markets. How flexible can you be in pushing your external boundaries (from whom and where you source) and your internal boundaries (how tolerant can your specifications and manufacturing processes be)? Companies that leveraged the pandemic to build flexibility into their upstream supply chains facilitated not only improved cost but also parity-or-better quality.
5. Finally, be resilient. If anything, the pandemic reminded us that “what goes up, must come down”. Use this opportunity to develop and implement well thought through plans that target supply, quality assurance and durable costs in the event of a disruption. Lastly, use the disruption to further fortify your supply chain and sourcing foundation.