What are Supply Chain Bottlenecks?
Most organisations assess spend categories based on the financial exposure and the supply risk they pose to the organisation. Financial exposure is measured by the relative monetary value of the product or service being sourced. Risk is assessed by the potential complexity of the product or service and the number of suppliers capable of supply, i.e., if there are limited sources of supply or if it is extremely difficult to change supplier in the event of supply failure, this is deemed to be a high risk spend category. Spend categories that have low to moderate financial exposure but high supply risk are called “Bottlenecks”. Whilst they may not command large relative expenditure in an organisation, they have the potential to cause huge disruption because the organisation has limited options in the event of failure. Once bottlenecks have been identified, the resource is then applied accordingly, and appropriate supplier relationship management techniques are deployed to ensure the security of supply.
Frequently, when assessing the risk of a spend category and its sources of supply, organisations assess the tier of supply immediately upstream from the buying organisation. However, most supply chains have multiple tiers of supply beyond the first tier. For instance, the first tier could be a distributor, importer, or wholesaler who relies on many tiers of supply such as producers, manufacturers, and extractors. The risk may be hidden within these multiple tiers of the supply chain. For example, most items of Personal Protective Equipment in the UK were readily available before the Pandemic from numerous distributors who held high inventories locally. As a result, this spend category seemingly posed a very little risk as security of supply was always guaranteed. It was also considered to be relatively low financial value so for many organisations, it did not appear on the radar as a spend category that should command major sourcing attention. However, mapping the supply chains beyond the first tier would have determined that most PPE was manufactured in only a finite number of factories in the Far East. As a result, the global supply chain had limited capacity with suppliers located mainly in the same region of the World. When that region closed due to the Pandemic, demand in other regions of the World simultaneously increased significantly. It symbolised the perfect storm for a bottleneck spend category. The automotive industry is currently experiencing a similar scenario with the supply of microchips and semiconductors.
This highlights the importance of assessing all tiers of a supply chain to determine risks in a supply chain and not just the immediate tier of supply. For UK organisations, particularly SME’s, a robust supply chain mapping exercise can identify where an organisation may be exposed to hidden risks beyond its initial suppliers, particularly concerning global supply chains. Consequently, measures can be put in place to manage these risks or alternative sources of supply can be developed, preventing bottlenecks causing major supply chain disruption.
For more information about these articles or how the ASTUTE 2020+ project can help your organization, please contact Professor Hefin Rowlands (firstname.lastname@example.org)