OFFCORSS C.I. HERMECO S.A.

In today's globalized world trade, not only are the four concepts VUCA – Volatile, Uncertain, Complex and Ambiguous – intensely lived, but a fifth and powerful variable came to play a determining role in recent years: The Imbalance. Like Yin-Yang, Day-Night, or Force-Darkness, demand and supply are interconnected in opposite ways to such a magnitude that a single shred of imbalance can impact not only locally but with more effects along supply chains around the world by spreading easily.

Precisely, with the current context and in the face of several difficulties, it is important to recompose the plans and execution of the supply. To this end, the following points are highlighted as a practical guide to strategic review:

1. Alignment and clarity. Trust starts at home. And for that it is important to have agility and effectiveness in the internal processes that lead to procurement decisions. Organizations must have absolute clarity on roles and responsibilities, internal response times, policies, deliverables, and the purpose of the sourcing process. Effectiveness is achieved when purchasing areas and user areas understand the reality of the context, work hand in hand and allow each step of the process to be executed flawlessly.

2. Understanding and visibility of the supply network. The consequences of imbalance or disruption of some global raw material, whether a commodity or large-scale supply, impact the entire global supply network. That is why it is essential to have a clear map of the raw materials and large-scale supplies that affect the value chains of the most important purchasing categories. This map directly illustrates risk exposure and dependence on lower-tier suppliers and countries of origin that have an important weight in their supply.

3. Revalidation of purchase categories. It is vitally important to continue increasing redundancy and keep the sourcing and market validation processes active in the leveraged purchase categories. The competitiveness of the business will depend on continuing to explore and develop new sources of supply that mitigate the inflationary impact affecting current cost structures. Similarly, in the strategic categories where it is key to strengthen relationships of lasting, solid and trustworthy alliances, it becomes imperative to achieve openness and total transparency and jointly evaluate the risks, and prices of the drivers that are affecting the cost structure.

" Dedicated savings workshops, performed jointly, facilitate the generation of ideas and alternatives that the organization itself would not have been able to identify ​"

4. Generation of networks and Tandem alliances: We understand that the chain is only as strong as the weakest link. Therefore, it becomes imperative to have tandem alliances in certain key categories. This type of alliances are characterized by creating mini-clusters whose objective is to identify and seize sources of improvement of competitiveness in a product or family of products relevant in the portfolio. It seeks to have a better flow of information and materials between the parties with timely, recurring and complete communication. And likewise, achieve the objective of generating savings in the chain that impact on product cost reduction without affecting margin for the actors.

5. Competitiveness programs. Developing savings and competitiveness programs within the organization will always be more a matter of mentality and culture than methodology. In any case, it is recommended to take into account the following aspects to design and implement these programs: focus on key categories and a potential savings target, identify possibilities for design changes and minor specifications that do not affect the quality of the product, eliminate parts or inputs that are not adding value perceived by the client, validate raw material substitutes and encourage design for competitiveness and flexibility.

Accordingly, these programs should be developed in conjunction with suppliers. For this, it is essential to be able to share in detail all the information relevant to the exercise. Dedicated savings workshops preformed jointly, facilitate the generation of ideas and alternatives that the organization itself would not have been able to identify.

6. Flow maximization. And although the importance of constituting a flexible, resilient and redundant supply chain has already been discussed, the focus at this point will be on reducing lead times. In the comparative analysis of purchases and evaluation of proposals, greater weight should be given to those options that have short lead times. The impact on business profitability derived from the cash conversion cycle throughout the chain has increased significantly with the current context. Short lead times mean less working capital invested in inventories and increases the speed of collection for suppliers.

These six points comprise a practical guide on how strategic sourcing can be reviewed and managed to face the great challenges that companies have in this context of imbalance, uncertainty, and economic environment.