When Not to Fix Your Supply Chain with a Band-Aid Solution

Will:
Ladies and gentlemen, your favorite podcast is back. We are here and it is Will Davis. I am excited to be with Dan Magida. You’re listening to Safety Stock. Dan, how’s it going, man?

Dan:
Pretty good. I, I like that. I like that intro. It sounded like we’re gonna like do a little tease for like NPR or one of those like public radios, you know, kind of, kind of, kind of nice

Will:
Now the cooking of rice with NPR. Mm. That, that would be my NPR voice.

Dan:
Just, just soft. And just to the point, just delicate, delicate, just like rice,

Will:
Just like rice. We, and we’ve got, we’ve got a delicate topic we’re talking about today.

Dan:
Yeah. Interesting. Piece oped in fortune magazine by Katherine judge. Who’s a Columbia law school professor who also wrote a book about the middleman economy and the power of going to the source, which we’re firm believers on, you know, going directly to the source. But she talks about how not to fix supply chains. And usually we’re here to educate you on what you can do to fix supply chains, but how not to fix supply chains, pretty captivating read.

Will:
I will say you should go straight to the source whenever possible. The only thing is that sometimes a middleman may provide a lot of value and if they do provide a lot of value, you need to make sure you understand that value, you know, before you cast them out to the wayside.

Dan:
I don’t wanna make inferences here from, from the piece, but also with that middleman portion. And she talks about this area of multi-sourcing. Sometimes the middleman has to improvise to get you your goods and you don’t know where they’re going because the one thing you sometimes lose with the middleman is transparency.

Will:
You know, when we’re talking about this from a supply chain perspective, there are a lot of things that we’ve covered, where there are things you can do differently. There are things that you can do more of, less of, and, and we think that it will help you as it improves certain parts of your supply chain, your operations, et cetera, you know, in this article, I think there’s two things that really she is speaking about, which are up for debate in terms of how helpful they are, or, you know, how helpful they may not be. One thing she talks about is, you know, let’s go and talk about multi-sourcing, you know, in certain cases multi-sourcing her argument is, is that it may not be as helpful because it undermines the strong relationships you have with your primary vendors. The gist gist of that can be correct, but the big thing that we always, or, you know, or I’m advocating for, and we’ll see what Dan thinks is that you have to protect your supply chain. You, you have to have the ability to pivot. And typically the ability to pivot means you have the ability to go somewhere else. If that supply dries up, for whatever reason,

Dan:
She gets to the point where like, it can weaken relationships as you, as you mentioned. And also there’s gonna be disruptions. I mean, pandemic natural disaster war, like we’ve seen sunflower oil, like as an example, and people had to move for a quick decision to, to sustain their supply chain, but in doing so you may lose that transparency into like your raw materials. What we’re not advocating for is making those like RA decisions just to keep product on the shelves. Like do the research, do the QC checks the audits, everything that’s possible, where you have a great secondary source. I, I think to our point, like a bandaid solution does, can make things worse, but you also need to protect yourself. So knowing where those outlets are, as long as you do that due diligence ahead of time. That’s very important.

Will:
Yeah. And I think that’s the part where people typically miss is the due diligence ahead of time. Typically you see people in supply chains when something happens and now they can’t get something from point a or they can’t get it from supplier a they’re forced to move quickly to supplier B or C and that work to understand, do they feel confident about what’s happening with B and C may have not taken place? You may not have a hundred percent fidelity in that.

Dan:
I, I think most of the reason why they’re, I mean, running around with their heads on fire is because they don’t want to have a stockout. So they’re gonna sacrifice something in their supply chain. And, and that’s that bandaid solution that I think is being inferred here where yeah, in the short term, it’s not probably, it may not be a great customer experience. And she’s trying to say think long term, like where are you gonna be? You don’t wanna jeopardize your brand reputation, right. As well in the process, right?

Will:
The, you know, the second thing she touches on, which I think is there are short term decisions from an operations or, you know, a company level supply chain that are made that don’t necessarily benefit them from the long term. There’s a lot of short term decisions that may be made to alleviate some pain at that point in time. But you’re ultimately pushing off what the long term answer is. So Dan, I think a good example is people will put off technology or software solutions that are going to give them the ultimate long term success for something they need to do. It takes effort, it takes buy in, it takes time, money, investment into suppliers. You know, it’s short term. It may be some pain in order to get it up, but the long term benefits are there. And we see people time and time again, put off these solutions until they get to a breaking point from where they are today. And they say, I need help. And then it just becomes a little bit harder, but they ultimately move on to where they need to be.

Dan:
Yeah. And what one example that she gives in this is like the auto makers. And we’ve gone to pretty deep, I guess, as deep as we can get based off of our knowledge, based on just on semiconductors and how look they had to cut cost, which denied some revenue also could harm relationships with these semiconductor manufacturers what’s led possibly to well she says vehicles were major contributor to the rapid onset of inflation this year, but then you have the chips act that was passed where we’re gonna bring nearshore that manufacturing process, which alleviates I, some of the dependency like on Taiwan, semiconductor, even the Pelosi was out there just advocating oh, with, with Taiwan. So like how will that discourage productions? I don’t know if it’s gonna discourage productions. Cause I think near shoring is, is a, is a very suitable way of, for multi-sourcing where you’re alleviating possibly like pandemic or disaster or war efforts somewhere else by hopefully those things don’t happen or occur in America, obviously that they can still happen. But you’re just getting that secondary source redundant senior supply chain that will hopefully lead to the, the, I guess the lessen your, your relationships on those. But I also think it will encourage dual sourcing as well, which I think is different than multi-sourcing. But what, I guess we’ll see what happens cuz that’s still three to five years out the semiconductor and building probably building that state side and getting jobs and there’s all the labor as well on top of it that, yeah, we can’t miss out on,

Will:
I think. Yeah. And maybe the last thing to kind of say there and that it’s, you know, it is kind of a not great subject that people like talking about is a lot of times people will also throw money at the problem by hiring whatever those short term problems are. As opposed to fixing the process or fixing like the root cause of what’s going on.

Dan:
Well, I mean, I, I, I, I hate to say it, but like what we saw during the pandemic was manufacture switch their, I guess they’re pros their strength and what they do to other industries to help alleviate a problem, which could give us short term revenue bump, but then that, then that goes away and then they go back to what they were doing before. And that demand hasn’t been to where it, it was before. Like we’ve seen that just, I guess, just in CPI numbers, but that’s one of the other things like manufacturers are nimble and they can address multiple different things, but is that the best case for their business? So just like brands have bandaid solutions. Suppliers also have engaged in bandaid solutions as well, which I don’t know if fixing the short term or that short term problem. Isn’t always the best approach. Either. Just sit, still be patient. I get it. You need cash to operate it. It goes on both sides.

Will:
Yeah. I think what we tend to see is that the, the brands and supply chains and the companies that typically are performing the best, have the long term focus in play. And they’re the ones that are least likely to make those shortterm decisions to solve that. And they’re more focused on what the long term is to protect the long term health of their business.

Dan:
Well, if, if any of you guys have a area where how not to fix supply chain, please reach out, let us know at hello@anvyl.com. We would love to know more on how you would not fix the current issues or any problems you have in your current supply chain.

Will:
Yeah. So until then, we’ll talk to you soon.