Tiffany Presley, attorney in the Supply Chain Practice of Barnes & Thornburg LLP, offers advice on how manufacturers can achieve better visibility of, and control over, suppliers at the tier-one level and beyond.
These days it can be “quite difficult” to hold tier-one suppliers responsible for interruptions of supply that occur at the tier-two level, Presley says. “Given where we are in the current supply chain environment, a tier-one supplier is simply not going to want to sign up for that — to take on responsibility for their sub-suppliers.”
Tier-one suppliers, she adds, “can barely control their own production in this environment, let alone be willing to take responsibility for someone else.”
To mitigate the impact of disruptions in a multi-tier supply chain, the original equipment manufacturer (OEM) can require a tier-one supplier to guarantee enough product to meet demand forecasts, plus an additional 20% in case of need. The tier-one, in turn, can pass that commitment on to critical tier-two suppliers. “But at the end of the day,” says Presley, “if a barge gets stuck in the ocean, there’s only so much you can do as far as getting product to the tier-one supplier and your doorstep.”
The possibility of supply chain failures has increased over the last couple of years due to a number of factors, including the COVID-19 pandemic, war in Ukraine and overall supply chain congestion. On the positive, side, Presley says, manufacturers are acquiring more effective tools and technology for achieving visibility and control over their extended supply chains.
Ultimately, though, the key to alleviating supply chain risk lies in diversifying sources of supply, Presley says. Companies have been drawn to single suppliers for reasons of cost and reliability, but they can no longer expose themselves to the risk of failure that often result from such relationships.
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