Finding Hidden Opportunities in the Supply Chain

June 7, 2011
Authors
  • Daniel Hsu

    Former Manager, BSR

Last month’s headlines in China included a deadly accident at Foxconn, a product recall that took Little Sheep meatballs off retailer shelves, and chemically induced “exploding” watermelons that cast doubts on produce quality in Jiangsu Province. For Apple, Yum! Brands, and many other firms that source from China, stories such as these are constant reminders of the many risks inherent to complex supply chains. Given this, it is not surprising that most companies take a risk-management approach to their supply chains.

Yet there is another dimension of the supply chain that is often hidden or left out of business considerations—opportunities. Companies that look for opportunities in their supply chains—rather than just risks—can find ways to bolster long-term margins, enhance reputation, and increase competitiveness. And broader impacts can also include reducing environmental impacts, raising local income levels, and promoting social stability.

In my recent work at BSR, I’ve seen firsthand innovative supply chain strategies that go beyond managing risk to creating competitive advantages in the marketplace as well as positive environmental and social impacts:

  • Local sourcing: One hotel of a well-known international chain was located in a remote tourist location, making it difficult to obtain the standard décor from the franchise’s centralized source. Instead, the management decided to purchase crafts from local ethnic artisans to decorate the hotel, taking advantage of the area’s cultural distinctiveness. This approach reduced overall costs, strengthened ties with the local community, and created a unique and genuine experience that was well received by hotel guests.
  • Proactive supplier capacity building: A pharmaceutical company recently developed a policy to engage suppliers in designing new manufacturing facilities. When suppliers plan expansions, the company offers its own engineering team to help the suppliers incorporate the most energy-efficient technology as well as the highest environmental, health, and safety standards into the new buildings’ design. In the end, this policy helps minimize production costs, improve supplier relationships, and establish long-term competitiveness in a fast-changing regulatory environment.
  • Streamlined supply chain: A major retailer is piloting sourcing its produce directly from agribusinesses, eliminating several intermediate steps between the farm and the store. By “shortening” its supply chain, the retailer is reducing costs, securing a more stable supply, and ensuring greater quality control (particularly important in a market jittery from recent food-safety scandals). Additionally, the pilot program is promoting more environmentally friendly farming practices and increasing incomes for the farmers on the other end of the supply chain.

The actions in the above examples are not necessarily simple or cheap to implement. They require creativity, investment, and adaptation to local situations. Still, stepping out from behind a risk-focused lens and taking an alternate perspective can reveal additional opportunities that can build long-term business success with positive wider impacts. So if both risks and opportunities exist in the supply chain, why consider only the former?

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