How Effective Supply Chain Management Can Strengthen Your Business as it Grows

A medium sized business cannot survive with a small business’s supply chain strategy.

While smaller-scale operators can sometimes get by with relatively ad-hoc supply chain practices, some businesses may find that those informal systems need to evolve alongside the size and complexity of the organization.

Without adapting as the wider organization grows, businesses could find themselves struggling to meet customer demands on time and on budget, with higher exposure to significant vulnerabilities, or potentially leave opportunities to save money or improve supplier performance on the table.

That was the case for Burnaby-based OSI Maritime Systems. Founded over 30 years ago as an electronic charting software provider for marine vessels, the company pivoted about 12 years ago into hardware.

Today it custom builds the large and complex hardware navigation consoles, known as bridges, that sit inside the command decks of 26 NATO member and NATO-allied navies around the world. The company’s sophisticated hardware helps ships navigate waterways globally, detect underwater obstructions, even monitor the skies above.

Develop supply chain practices as the business grows

The pivot enabled the company to quadruple in size over the last decade, but its procurement, supply chain and vendor management strategies did not evolve with it—at least not at first.

“The procurement team at the time only had a couple of people, and you’d potentially have two or three people going to the same supplier for the same type of parts,” says Chris Knabe, OSI’s director of production and supply chain. “It was just not very well coordinated, and you’re not getting efficiencies from the supplier, because you’re not leveraging the demand correctly.”

That’s ultimately what inspired OSI to bring Knabe and his 25 years of experience in contract, supply chain and logistics management onboard.

He explains that OSI’s bridge systems are typically custom made for specific ship models within each navy’s fleet, meaning many of its products are one of a kind. In fact, no customer has ever ordered more than 12 of a product with identical specifications.  

Being a low-volume business, however, means there is very little room for error in the supply chain, as a single missing piece or delayed delivery can hobble the company’s ability to deliver on time, on budget, and up to its standards.

Knabe says that previously, the now 400-person company was able to get by making one-off orders for its custom-made components, but as it grew that approach proved unsustainable.  

After joining OSI roughly two and a half years ago, Knabe got to work developing a sophisticated supply chain strategy that better suited the company’s current size and future ambitions.

Prioritize relationship management and clear targets

First, Knabe says he organized the company’s external inputs into four categories: Major systems, metalwork, electrical, and electronic devices.

“We have a team of category leads reporting to the purchasing manager, who reports to myself, and each one of those category leads is responsible for a different type of product that we outsource,” Knabe explains.

Supplies within each category are further separated into those which are broadly available and those that are custom made.

While category leads are constantly on the lookout for better off-the-shelf components, Knabe says they spend most their time managing relationships with suppliers of more specialized and bespoke components.

“Category leads hold a meeting on a quarterly basis where they go through all of our key performance indicators for our suppliers, which include cost, lead time, on-time delivery, quality, customer service and innovation,” he explains. “We look at those on a quarterly basis, and we come up with a vendor performance scorecard that ranks them on a ten-point scale.”

Those scorecards, Knabe says, aren’t just for internal use. OSI meets with each supplier of its core components to review the scorecard quarterly, semi-annually or annually, depending on their size and sophistication, and highlights potential opportunities for improvement.

“If they scored, say, a six in terms of their on-time deliverables, and we think it’s realistic that you should be able to get up to a seven or eight by the time we do our next performance review, we’ll establish that as a target,” he says. “Once we get through the entire vendor management review we’ll sign off on the report card, and then that’ll be the baseline that we can compare them to the next time we do it.”

While implementing a system that encourages vendors to strive for better performance over time, Knabe says OSI also formalized its processes for managing unexpected challenges that arise between reviews.

“If it’s a technical non-compliance, then we issue a supplier corrective action request, and they need to identify the root cause and the corrective action,” he says. “If it’s a commercial non-compliance—like they tried to charge us the incorrect price, or the lead time was longer than what they said it would be, or we have a defect that’s covered under warrant —then we’ll deal with it through a contract or claims letter.”

Reduce unexpected risks with multiple suppliers

Even those suppliers getting top marks are not immune to sudden and unexpected challenges. For example, a contractor in Taiwan was unable to make its shipments on time due to a recent earthquake.

Pivoting in an emergency is a lot easier said than done, as it typically takes OSI six to 12 months to onboard a new supplier of complex parts and complete their due diligence, meaning they need alternative options at the ready.

“That redundancy in terms of our supply chain is really important,” he says. “If a supplier has some sort of catastrophic event that puts them out of business, we need to make sure that we have someone set up elsewhere in the world so we can keep going as a business, because these things can’t usually turn on and off overnight.”

Having multiple suppliers for the same component can introduce compatibility and consistency challenges. That is why OSI uses the same supplier for the entirety of each individual project but maintains relationships with multiple suppliers that offer the same or similar materials and expertise.   

“If two shops are supplying the same parts on the same project, there’s rework and fitting that we’ll have to do in-house, and it becomes more of a protracted process that’s more prone to errors and issues,” Knabe explains. “So, for projects 1, 2 and 3 we’ll use all of supplier A’s product, and for projects 4, 5 and 6 we’ll use all of supplier B’s product.”

Though either supplier could provide all the materials and components OSI needs, the dual-source or multi-source approach allows them to quickly pivot should one run into unexpected challenges or delays.

The benefits of effective supply chain processes

These strategies help OSI better manage supplier relations and ensure they’re able to acquire quality parts on time and on budget, but the benefits extend well beyond their internal operations.

Knabe explains that getting organized internally also helps their external partners better anticipate and meet their needs, maintain consistency, even offer better prices or value-added services.

“Rather than buying one project’s components, we forecast what we’re going to need for the next 12 months, we get them to quote their best bulk price based on our forecasted usage over a 12-month period, and then we enter long-term agreements,” he says. “Now we can do much more creative and flexible things within our supply chain, like get them to advance-buy materials that go into our products, hold stocking quantities for us, and inform us if anything in their supply chain is going to impact us in the future.”

For example, one of OSI’s circuit board assembly providers recently switched from ongoing to annual production. Previously, OSI would have only discovered that a key component wasn’t readily available after they placed their order, potentially delaying the project.

“Now they’re holding a minimum quantity of that for us at all times, and as soon as they get below that minimum quantity—without our authorization—they’ll go and order more because they know we’re going to consume it,” Knabe says. “Those are the types of things that allow us to scale as an organization, and over the next five years we have a growth plan to double in size, so these types of initiatives are really important for meeting that growth trajectory.” 

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