Facing Disruption through a Vendor Network Strategy

Does it satisfy you to know that with a customer-centric mindset, you can make a concrete contribution to the expansion of a business? It certainly passions me to learn when a customer is satisfied by receiving their products and services simply, quickly, and assertively. I enjoy it even more by knowing that it can be done by improving our company's bottom line results.

As logistics leaders, I believe our main contributions are achieved by simplifying processes, improving operational results, and increasing the company's value offer. But then, what should we do to achieve these goals? I’ll refer to some known mantras to address how it can be done.

As Peter Drucker said, “If you can't measure it, you can't manage it." I also believe that simple is better. So, I suggest designing a simple scorecard to track your actions. In my experience across different industries, I have validated that effective key performance indicators (KPIs) to drive actions on service improvement are On Time and In Full, aiming toward faster deliveries and complete orders. Very important, though, is to balance those efforts by keeping at the same time an eye on financial KPIs, such as logistics expenses and inventory turnaround, aiming to be efficient and release working capital.

Most certainly, depending on the size of the company you’ve worked for, the available resources you have had at hand, the different cultures, some of the means you may be thinking about and/or you are already experienced at, includes, among others:

● Process improvement methodologies (Lean Six Sigma, Sales and Operations planning, etc.).
● Enterprise Resource Planning (ERP)/ Warehouse Management System (WMS) implementations.
● New technologies (Artificial Intelligence, Machine Learning, Augmented Reality, Voice Picking, etc.).

No matter what path you follow, there will always be challenges on the way, and one of the biggest fears we face as logistics professionals, and that unfortunately, at some point it is unavoidable to face, is having a disruption in the supply chain, which directly impedes reaching the ultimate satisfaction goal we’ve been talking about.

I have faced many causes for disruption, such as inclement weather causing closure on roads; unavailable equipment; strikes and blockages; services restricted due to financial conditions; pandemic restrictions; and others.

I have learned the importance of the expression “don’t put all your eggs in one basket," known to have been first used in the novel “Don Quixote” by Miguel Cervantes. 

And this is the point where I’d like to focus, and that I feel is not commonly addressed, which is a vendor network strategy to ensure supply chain continuity upon unforeseen situations that affect the logistics.

As a logistics leader, you must try to identify all potential critical points in your operations and design a matrix risk to consider possible disruptions and have in place plans to overcome them. Trust me, you can’t anticipate nor imagine many risks until they happen.

So, what exactly do I mean by vendor network strategy? It is about having multiple vendors or strategies to perform specific services. You can have a service performed by one vendor but be prepared to have a backup in case of disruptions or increased needs.

Let me share real circumstances, which may give your insight into similar situations you may have experienced or come to experience at some point.

When I first started in my current role, I was startled by having one single vendor performing all our trucking services from Porvenir, Tierra del Fuego (one of the most remote locations in the south of the world) to San Antonio, Valparaíso (the most important port on central Chile), which is a travel distance by land greater than 3,000 kilometers passing through Argentina. Our logistics team promptly analyzed which trucking companies brought goods from the north and required loads to avoid returning empty to their headquarters. So, what disruptions have we faced, and how we've been able to overcome them?

● A supplier with unavailable equipment due to delays on previous service, maintenance, insurance renewal, and other causes => increased flexibility by having choices of vendors, allowed us to secure more capacity, overcoming deficits from one supplier with availability on another.

● Inclement weather closing the borders between Argentina and Chile, limiting the transit from/to the region on its regular land route => by working with multiple vendors, other transportation modes became available, such as (a) shipping by truck but with vendors that have an agreement with ferries that permit us to use an internal route in Chile; (b) shipping by container using cabotage service for shipments by sea.

" I have no doubt that the reason for the existence of a company is to satisfy the needs of their customers "

On air freight services, we used to work with two freight forwarders companies. After a market study and performing a bid process, we switched temporarily to another two freight forwarders, which provided services simultaneously for three months, after which we delivered all the cargo to one of them but kept an agreement with the other in place.

● Commercial terms changed from our supplier side after the first year of service, which had an important financial impact on our operations => we could switch within a week of advice notice to the alternate company keeping full continuity on our exports.

Going back to my years working in the USA, I remember implementing a distribution strategy that differed from the belief that existed in the company when I first arrived. The mindset was that the 101 logistics said that distribution should be done through a single hub. Our main customers were on the Northeast coast, and we imported and stored through the port of Baltimore, MD. We ended up opening import and storage operations in the ports of Philadelphia, PA, and New York, NY.

● We faced high port congestion and a lack of available drayage service due to port strikes on the west coast that diverted vessels to the east coast. We got a call on a Friday night from our NY supplier indicating that they wouldn't be capable of retrieving the 20+ containers being unloaded from 2 vessel services, which meant demurrage costs would be huge => we were able to provide drayage support from a secondary supplier we had developed in the area and divert containers on one of the vessels to be discharged in Philadelphia.

I have no doubt that the reason for a company's existence is to satisfy its customers' needs. There are many factors to make this happen. And certainly, having a good supplier network, and providing flexibility to your operations, is a critical one that will allow you to overcome the difficulties of unexpected disruptions in the supply chain.