Knowing your suppliers

Dan Carmel, LRQA’s director of Aerospace Business Assurance Services says that when it comes to supply chain due diligence, it pays to know your suppliers.

Over the last three years, disrupted supply chains revealed how weak many global supply chains were and still are. Companies became aware of hidden weaknesses and gaps in their well-established and low-cost supply chains, which led to some nasty surprises for some. Those that had proactive management capabilities, such as the ability to map their supply chains, enhance visibility of interdependencies and predict points of failure, fared much better operationally and financially. Those benefitting from a vast network of auditors on the ground were able to utilise those skills and insights, performance criteria, mapping tools and visibility of suppliers’ capabilities all the way down to tier 2, which helped them track thousands of parts and, consequently, mitigate their downtime.

Supplies remain volatile

While semiconductor supply issues have eased over the last 12 months, the same cannot be said of specialty metals and raw materials for manufacturing. The current supply chain challenges facing many aerospace prime contractors and tier 1 and 2 companies are no longer just about operational or technical problems. Now, there’s competition from a wider range of companies, locations and sectors needing the same materials for their products.

For example, titanium, once exclusively for use in aerospace, structural engineering and medical devices in the US and Europe, is currently forecasted to have the largest consumption in Asia-Pacific by 2030 [1]. It is needed for a wide range of infrastructure, electric vehicle production, oil and gas and construction projects scheduled over the next 10 years. Extensive demand is also forecasted for India, Japan and Australia.

Another example is carbon-fibre, which was once exclusively developed to replace aluminium in aircraft structures, is now being used in electric vehicles, laptop cases and sports equipment.

Major, unrelated industries are now competing for the same, scarce resources in ways that they never have before. Many companies are attempting to mitigate such supply chain risks by going further downstream to influence suppliers and secure sources – sometimes at the raw material level.

Moving from reactive to proactive supply chain management

It is no longer enough for a business to know who suppliers are and monitor and report on their performance retrospectively, where any necessary intervention may be identified a little too late. If companies want to truly know their suppliers, keep their finger on the pulse, understand where they source their raw materials, and who else is competing for those materials earlier in the chain than they are, then the assurance industry can help.

Using supply chain assurance programmes, such as that from LRQA, to map their supply chain up and down stream, businesses can understand their suppliers’ constraints, capacity and capabilities as well as the environments they are operating in. Businesses may uncover a difficult truth: that seemingly unrelated products and industries are now, more than ever, tracing their suppliers’ sub-tiers down to using a single source. Therefore, understanding the impact of lowest-tier suppliers into suppliers higher up is now more relevant than ever.

Over-reliance on core sources

Companies may think that they have diversified supply chains with multiple sources of suppliers, but the truth may differ. It may surprise larger companies to know that wide supply chain systems often depend on a vastly smaller number of core sources. If those cores fail, a much bigger number of suppliers are in trouble. The robotics industry, for example, relies on magnetic parts driven by rare-earth metals whose mines and are globally owned and operated chiefly by Chinese companies [2] since their establishment in the 1980s. If these core mines reduced or ceased supply for any reason, many global suppliers of magnetic equipment would suffer shortages, impacting their products crucial in robotics, automation machinery and aerospace electro-mechanical products.

Real-time maps of key supply inputs, sequences, origins and destinations can be a crucial enabler to better supply chain management. Rather than an over-reliance on technology, supply chain managers also need to monitor and analyse this information in a holistic way, adjusting plans to meet demand using a range of options which they did not have visibility of before.

Regaining control through holistic, predictive mapping

LRQA’s Supply Chain Assurance programme offers holistic data backed up by auditors-on-the-ground that can and should now facilitate better decision-making in a streamlined and measured manner. We know there are SCM management tools out there already utilising ‘Big Data’ and which are often overwhelming. That’s why LRQA’s unique network of human intelligence on the ground, supported by wider data bringing in direct effects such as political, social, environmental, physical, meteorological and geo-political factors can enable supply chain problems to be predicted before they fully arise. LRQA can notify managers and even recommend actions to take.

Companies now recognise that there are global, macro-event data intelligence capabilities within LRQA’s supply chain assurance tools that allows them to identify and assess the risks and impacts of events affecting supply chains like never before. These include awareness of:

• Decreased production levels from skills shortages
• Pandemic/war/raw material resource/weather-related disruptions
• Commodity shortages and multiple draws on the same core sources
• Surges in demand due to certain contracts being awarded or projects kicking-off
• Spikes in logistics pricing and transportation risk
• Changes to import and export tariffs
• Changes to trade-zone agreements
• Inflation

Combining these with insights from local experts and auditors on the ground will be crucial, too. As a leading global assurance partner, LRQA has a team of industry specialists on-hand to support the development and implementation of tailor-made audit programmes that encompass every aspect of supply chain operations.

LRQA’s customised supplier audit programmes

A crucial supply chain assurance (SCA) component, LRQA’s tailored supplier audit programmes are designed with specific brand and client requirements in mind, comprehensively covering all aspects of supply chain operations. Supporting this is robust data analysis from LRQA’s EiQ tool, which provides invaluable supplier insights for a thorough understanding of risks and improvement opportunities. Combined, LRQA’s SCA programme offers a solution-based approach crafted by industry experts with experience of industrial supply chain processes to enable streamlining of supply chains, mitigation of risks and safeguarding of a brand's reputation.

Ultimately, LRQA’s supply chain assurance programme is designed to get companies asking: How exposed are we to particular trade lines that are likely to be disrupted? The answers to that will help clarify where your organisation is in terms of its supply chain management position. Are you in a ‘detect & react’ mode? Is that sufficient? Or should you be thinking about a ‘predict & prevent’ capability which requires proactively challenging the current thinking around established supply chains. That might be uncomfortable but the aim here is to enable greater resilience and response in times of shocks and disruptions.

Working in supply chain audits for decades, LRQA’s Supply Chain Assurance programme is a cutting-edge, human & data intelligence-driven service utilising hundreds of local auditors globally. Our clients value our capabilities to help them move beyond reactive supply chain management, predicting risk and equipping them with the tools they need to take mitigating actions ahead of time.

[1] Titanium Market by Application, Product Type and Geography - Forecast and Analysis 2023-2027 – Technavio Market Analysis

[2] Marsh McLennan Economic News - China Is Moving Rapidly Up the Rare Earth Value Chain – 7/8/2022

www.lrqa.com