How sourcing partners enable resilience?

A graphical presentation of sourcing growth and resilience

The Importance of Business Resilience

April 2004. The US 1st Cavalry Division has recently relieved the 1st Armored Division in its occupation of Sadr City, Baghdad. Everything seems peaceful until one day a platoon is ambushed in the city while on patrol. The platoon holes up in a house and reinforcements are sent to extract them. However, the relief column is itself ambushed, the main aim of the initial ambush. What follows next is a life-and-death struggle against overwhelming odds; the will to survive in an eight-hour running gun-battle; the tragedy and deprivation of service in conflict and also the heroism that comes with being a soldier and a member of that soldier’s family. Resilience in the face of adversity has never burned more brightly.

In conquering adversity through resilience, running a business is no different

Business resilience is the ability for an organization to quickly adapt to disruptions while maintaining continuous business operations and safeguarding people, assets and overall brand equity. Business resilience goes a step beyond disaster recovery by offering post-disaster strategies to avoid costly downtime, shore up vulnerabilities and maintain business operations in the face of additional, unexpected breaches.

Go beyond business continuity planning

Today’s global supply uncertainty is rife with potential and actual risks. Political polarization in relatively stable countries gives rise to trade wars, borders are being hardened, corporate HQs are in flux, and the regulatory environment is becoming more complex. Not to mention the sudden ambushes from business adversaries, not unlike the ones in our opening story. As countries sail in rough waters, these significant changes magnify and exacerbate the spectre of many risks, such as terror attacks, data breaches, supply chain disruptions, and extreme weather events. These can pose critical risks in the form of unstable supply chains.

One of these risks is supplier disruption —any disruption to suppliers, service providers, utilities or infrastructure that impedes the flow of goods or services in or out of the business. While the majority of businesses have already made efforts to develop and test business continuity plans, traditional approaches can be inadequate and ineffective. Plans become stale, risk management and compliance programs are disjointed.

In my past life in a large European electronics company, we adopted a sourcing strategy called ‘China + 1’. At a time when everyone sourced from China, we were already preparing sources outside of China, knowing that the next Black Swan will need an alternative to China sourcing. Looking at events today we can say that the rest is history.

Change your mentality- wake up to reality

Like that lilting line of a song, a risk mitigation mindset requires examining each type of disruption with a broader perspective. This includes, for example, assessing the wisdom of bandwagon –single-sourcing strategy, such as understanding that when everyone is sourcing from China, it is like entering an ambush zone, a proverbial kill zone: so when tariff wars explode, chaos ensues – as what is happening now. Strategic sourcing teaches us that sourcing from obvious players must be coupled with 2nd tier suppliers that possess core competencies, if not better – but located in another strategic location, away from the ambush zone, so to speak.

Choose a Silent Winner

Companies have learned to keep the focus on reducing business risks, not just compliance. They keep connected with innovative but historically successful, vertically savvy suppliers who have core competence in design and manufacturing, for example. These companies may seem smaller but more nimble and can move fast to cater to your needs without having to go through layers of corporate approvals.

Choose those who have thrived in an uncertain business environment either as outsourced manufacturers or co-development partners –but with proven success in design and build projects.

Outsourced manufacturing will help you focus on your core competencies

Once you tap into outsourced manufacturing partners, it becomes easier to spend more time on building the business and focusing on the future strategy. Doing everything yourself can eat up precious time that would have been spent developing new ideas, marketing, and strengthening customer relationships: factors that are crucial for long-term success.

Outsourced partners provide competitive advantage (efficiency)

Co-development partners allow you access to design know-how, test facilities, knowledge, and capabilities that were initially inaccessible or uneconomical. You then get the chance to leverage these resources to help you stay ahead of your competitors. You have the power to tap into external resources- those of a partner.

Reduce overall costs

When you hire a professional organization, they will use their knowledge and expertise to help you reduce your overall expenses. Usually, expenses associated with design research, tests, inventory, cold storage, sampling, overhead, and staffing can pile up and cause a financial strain. With an outsourcing partner, these costs can be kept to a minimum.

How Outsourced Partners Mitigate Risk and Create Value?

They ensure you meet customer demand – they will take the responsibility of supplying the amount of products demanded by your customers. They will be responsible for raw material planning to meet production schedules. When these responsibilities are offloaded, your own business will spend more time on growth and building brand equity.

Increase flexibility and adaptability -Supply partners allow a business to adapt quickly to the changes in demand. When you outsource, you can expand or downsize faster without having to worry about labor and labor laws. Increased flexibility is especially needed in today’s uncertain economies.

Reduce your overhead and risks- outsourcing partners can extend their logistics that reduces labor risks and the financial risk of an investment in equipment, property, and transportation in case the company downsizes.

Increase your capabilities and extend your resources – Outsourcing partners can bring extra capabilities, solutions, and expertise beyond the scope of the business. Your organization will then get a chance to utilize these excellent tools to increase productivity and efficiency. Logistics or cargo companies normally have industry connections that you can leverage on to save on cost and to improve your capabilities.

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About the author

Ike Eslao

Consultant, Team Pacific Corporation

Ike is a Certified Purchasing Manager by Institute of Supply Management and currently a business development consultant at Team Pacific Corporation. He held management positions at Philips Semiconductors, Integrated Microelectronics, TransProcure Corporation, Sagittarius Mines, and Arrow Freight Corporation. He was also a former President of Philippine Institute of Supply Management and a Chairman of Association of SEIPI Purchasing Managers. Ike earned his post-graduate degrees in Management and Economics from Asian Institute of Management and the University of Asia and the Pacific, respectively. He holds a BS in Mechanical Engineering from University of San Jose – Recoletos.

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