Supplying Thought: Supply Chain Stockholm Syndrome

Editor’s Note: Chris Valdivieso has worked in logistics, distribution, and inventory management for over a decade in the Food Service and Third Party Logistics industries. Originally from Texas he recently moved to Phoenix where he works with his local professional chapters arranging guest speakers for continued education programs. If you want to contact Chris for engagements or topics, email him at [email protected].

If you’ve ever been robbed, you’d know that the experience lasts longer than the actual event. Well after the danger has dissipated, the fear lingers. In effect, the experience continues to hold you hostage.

Now consider how you would feel if every day you went to work you were held hostage. Well, in many cases we are. Before we get to that, let me tell you a little story.

Recently, I participated in a five-round negotiation simulation where teams would contractually buy and sell products in an effort to maximize revenue. Midway through Round 1, cartels began to form. As sellers realized the buyers had limited options and there was zero oversight, price manipulating cooperatives took root. By Round 2, buyers realized they were being cheated and worked to break the cartels by forming buying partnerships. Some cartels failed while others lasted, but when price and revenue are the primary objective, and oversight is limited, these situations are inevitable.

Supply chain management involves getting the right products to the right people for the right price. That last part—the right price—is where we need to focus. When price controls the conversation the other aspects, like partnership and flexibility, are diminished. Specifically, when oversight and open communication are not encouraged you might find yourself in a hostage situation. Consider Sports Authority's current plight. Their suppliers are refusing to let them sell goods. Yes, their situation is far more complicated than that; but not for the supply chain team. They need to obtain and maneuver goods to help meet financial objectives to get the company out of debt, yet they cannot because their vendors won't release product.

Check through your supply chain, you might be in a single-source situation that puts you at risk. You might have even created the problem by guaranteeing business to companies and reducing their desire to keep pricing or service at required levels. Without proper oversight or allotted flexibility—generally contractual—you might be in for a rude awakening. Toyota, for instance, closed down its operation for a week due to a supplier related issue.

When I worked for a local wholesaler, one of our vendors could not get us a key summer item in time for the summer push. The product was manufactured by a company in China and we had no secondary supplier. We got substitute items, but they came late and were not as marketable. The disruption caused lost revenue and weeks of stress and uncertainty.

I have seen the logistics side of this as well. Companies rely on one major transportation company, but when tightened capacity or routing issues arise, product is stuck on the dock. One grocer I worked with had thousands of dollars in spoilage and lost sales when a shipper was unable to get a truck routed for pick up in time. Can you handle a disruption in your supply network?

With that said, I leave you with this thought: Are your tier 1 and 2 suppliers truly adding value, or it is possible that you have Supply Chain Stockholm Syndrome?

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