This article is part of a series of three articles on supply chain resilience – read our other two articles here:
Supply Chain Solutions Resilience Series: Managing the COVID-19 Pandemic and Beyond
Supply Chain Solutions Resilience Series: Continued Focus on Proactive Supply Chain Risk Management
Understanding our suppliers and building strong relationships with them enables us to design more resilient component supply chains. Long-term partnerships with our suppliers are therefore critical to our ongoing success. COVID-19 placed additional pressure on many of our smaller suppliers. It also increased demand placed through our distribution partners as companies tried to cope with the challenging environment created by the pandemic. Here we discuss why our sourcing strategy continues to put Plexus in a strong position and why we value our suppliers’ strength.
Our sourcing strategy has put us in a strong position
Our strategy to utilize distribution partners for aspects of our supply chain helped to buffer Plexus from some of the impact of supply disruption created by COVID-19. As a top 5 (or higher in some cases) customer for our largest distributors, we took advantage of buffer inventory programs that our distribution partners had in place with our manufacturing sites. At the height of the pandemic that constrained product availability, our distribution partners experienced a rush in orders from companies that usually buy direct. As the market normalizes again, these companies will revert back to buying direct. In many cases, Plexus’ long and steady relationships, including at an executive level, helped to secure an enhanced share of a distributor’s discretionary inventory. This wasn’t the case for all manufacturing partner and is a testament to the relationships that we have built across our distribution partners.
Supporting our suppliers through the pandemic
Given the financial strain that COVID-19 placed on businesses, our Supply Chain team initiated financial deep dives on our small suppliers. We followed an internal risk review process that identified over 1,000 partners and suppliers, from a list of more than 7,000, that we felt could be disproportionately affected by the pandemic. Multiple risk factors were assessed, ranging from movement control orders, employee stability, health and availability, working capital, free cash flow, burn rate as well as evaluation of some of the tier 2 management, material and logistic challenges.
Our teams contacted the CFO, CEO or owners for each of these identified partners and suppliers. The team’s priority was to communicate, engage and ensure the general health and well-being of our preferred partners, while also assessing the potential supply chain disruption and level of solvency within the supply chain as a whole.
Often during the evaluation phase we faced challenging decisions including who to help, how to help, or should we help? A handful of our suppliers were facing immediate chapter 11 insolvency. We stepped in directly by placing large last time buys, creating flexibility around accounts payable, to help the suppliers generate enough working capital and free cash flow to keep operating. We also provided guidance to our suppliers relative to small business aid packages that were available to them. This ensured ongoing supply for our customers, minimizing any disruption.
Continuing to face uncertainty
Today, the environment remains volatile as the pandemic continues and global economic activity is in varying stages of recovery. Businesses are making difficult decisions as the COVID-19 risk levels spike in different areas. Companies are adjusting operating procedures to ensure the safety of their employees while maintaining efficient levels of production. Our people and their ability to empathize and take action to de-risk our supply chain play a critical part in enabling Plexus to navigate these uncertain and challenging times. We remain dedicated to our suppliers and customers around the globe.
Authors:
Steve Bray, Global Director Commodity Management
Chris Holstine, Global Commodity Director