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Complexity of supply chains vs. supplier selection

Among the key challenges procurement is facing is the complexity of supply chains and supplier selection or RFP decisions, that do not properly reflect it. Few examples how decision based on price (or illusive total costs) can increase real TCO "low costs country supplier distanced 1200 km instead of local supplier 50 km away (for the lack of space here I won't bring details on % of price savings)"

  • delivery frequency (thus transportation costs) calculated on ideal regular weekly frequency - this decision limits company flexibility to quickly change orders, because short-term order would require additional truck costs

  • to optimize packaging costs - bigger lot sizes were defined to develop optimum packaging. Ordering smaller lots from now on requires packaging surcharge. Bigger lot sizes require more warehouse space. In some cases also extra warehouse manipulation costs, because they need to re-pack into smaller handling units

  • in case of defective delivery it takes min. 1-2 days longer to receive replacement delivery

These are few examples based on packaging, transportation and delivery dates.

How do you deal with your supply chain complexity to make sure your procurement team adds value? How does current COVID-19 crisis change your view on the supply chain complexity?

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