Business Automation and Software Blog

How to Achieve Supply Chain Sovereignty in Your Manufacturing Business

Posted by Robert Baran on Wed, Jul 19, 2023 @ 11:00 AM

businessman hand shows logistics diagram as concept-2

We started talking about “supply chains” in the mid-1990s. At that time, global political conditions were encouraging companies to expand into international markets. The internet world was gaining in popularity and telecommunications was booming. The business world changed: instead of the outdated model where a single manufacturer was responsible for performing most of the activities involved in bringing a product to market, international supply chains used specialized suppliers. Production costs and services dropped. Consumers were able to take advantage of better quality and preferred pricing for finished goods.

During the pandemic, the supply chains that had previously been considered trustworthy were found to be fragile. The belief in globalization is also now being challenged. So, relying on imports and foreign suppliers is seen to be risky. This has led to a change of focus on supply chain sovereignty.

Supply Chain Sovereignty Defined

Supply chain sovereignty is a companys ability to maintain control over its supply chain and minimize dependence on external suppliers. It involves ensuring that critical aspects of the supply chain, such as sourcing of raw materials, manufacturing processes, and distribution channels, are managed in-house or using trusted partners.

By increasing supply chain sovereignty, companies maintain greater control over their supply chain, which reduces the risk of disruptions, improves operational efficiency, protects intellectual property, and ensures greater flexibility in responding to changing market conditions and customer demands.

Manufacturers Face Challenges

However, supply chain sovereignty is not easy to achieve, especially for large and complex supply chains across multiple geographies and involving numerous suppliers. Significant investment is needed to:

  • develop internal capabilities and infrastructure,
  • establish strategic partnerships with key suppliers,
  • and implement risk management processes.

Some industries have started to reduce the number of suppliers in some regions, but many organizations still plan their supply chains around best-case scenarios without creating contingency plans. Companies must acknowledge and plan for scenarios where there is variability in lead times, input costs, and other factors.

Many companies are failing to manage their second and third-tier suppliers. Ignoring risks in this area can lead to significant unplanned costs. The old supply chains relied on the fact that manufacturers trusted suppliers’ lead times, costs, and quality. The last three years have exposed the risks of doing that.

How to Achieve Better Supply Chain Sovereignty

One argument is that cost and efficiency should no longer be the main metrics in determining how a supply chain works.

The following options can be evaluated to set up better supply chain sovereignty:

  1. Consider whether closer and/or more reliable suppliers may be used. Review the product and service portfolio to identify how the bill of materials and other factors may be changed to accomplish this goal.
  2. Is it possible that parts could be more quickly and easily replaced or serviced in-house? Or by trusted local partners? Consider this possibility carefully.
  3. Can you open a satellite manufacturing plant closer to your end customers? This step would give your company a facility closer to your end customers, ensure a faster response to their changing needs, lower your logistics costs, and cut tariffs.
  4. Revise your sourcing policies to focus more on reliable delivery rather than simply which supplier has the lowest costs. Focus on developing collaborative partnerships where suppliers have an incentive to innovate and provide value-adding input to product design and the production process, not simply just standing on the sidelines discussing pricing.
  5. You are already using ERP systems for analytics and decision-making capabilities. You need to open up its capabilities even further for greater visibility and more detailed monitoring of the supply chain: Rely on your ERP for cross-functional decision-making; Procurement, finance, and the supply chain should be working together.
  6. Boost traceability of suppliers’ products down to the lowest detail to avoid data silos and allow the analysis of supplier compliance, Key Performance Indicators (KPIs), and risks.

Moving Your Business Toward a Sovereign Supply Chain

We aren’t at the point where a company can completely depend on a local supply chain. The cost to source all raw materials and products locally is too high. Technology can help but better supply chains also require trust to work. Sovereign supply chains can be built; however, they require moving away from offshore sources and becoming more resilient by forming long-term, mutually beneficial partnerships with local suppliers.

Positive Vision is an experienced ERP vendor. We would be happy to assist you in choosing the right ERP for your business and ensuring that its launch is smooth and effective. Contact us to speak to one of our product experts about a customized solution today.

Topics: Supply chain sovereignty