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Shorten your supply chain

Recent local natural disasters has shown that a global supply chain is highly vulnerable. The disaster in Fukushima and Thailand easily disrupted global supply chains. Such events are enough reason to reconsider the length of a supply chain.

Not only natural disasters can easily disrupt the reliability of your supply chain. Also the current financial crisis shows how easily small events can turn into major disasters. Started at Lehman brothers, a domino of effects due to a completely international linked financial system, now even puts the Eurozone at risk.

The length of supply chains has increased in the last decades. Driven by cost leadership, outsourcing at a global level has stretched the supply chain up to 7 tiers. But how reliable is your supply chain and can you really control such a lengthly supply chain?

Those far away 7 tiers are often small production companies in countries like Thailand, China or Indonesia. Communication is difficult, language and cultural differences adds more complexity and realtime information about planning attainment can hardly be obtained. So, that puts your on time delivery at your customers at risk. Already companies start to build up safety stock within their supply chain, to level out the uncertainty. Which is a complete contradiction to  supply chain strategy.

From cost point of view it still might be opportune to keep so many tiers, but do you really know the risk [management] of such chain? Calculating such risk is quite difficult, which is not performed by many companies. Only at the outbreak of a disaster, one is confronted with the real cost.

I would advise companies to do their maths again. At your direct cost, it might be cheaper to outsource up to 6 or 7 tiers, but when it comes to supply chain reliability, it could be quite prudent to shorten your supply chain and keep things closer to home.

The advantages are obvious. You will deal with suppliers your really know and with which you can build a solid and transparent, long term relationship. Real time information linkage is more easily, especially when cloud solutions are installed. furthermore is re coverage of your supply chain at any event faster and can be better managed. You can be on top of things, which is almost impossible at real lengthly chains.