Report Urges Manufacturers to Rethink Supply Chain Strategies

Supply chains 'have been on a rollercoaster ride.'

Prior to the March disaster in Japan, Xirallic -- a popular pigment that gives cars a pearly shine -- was manufactured at just one factory in the world.

Production of the pigment, which is made by German chemical company Merck KGaA, took place at a factory in Onahama, Japan, 57 kilometers south of the Fukushima Daiichi nuclear-power plant.

The damaged pigment plant had to close, causing some automakers to temporarily restrict orders on vehicles in certain shades of black, red and other colors.

The plant resumed production in June, and Merck plans to add a production line in Germany. But the factory's temporary closure is a perfect example of why the term "supply chain disruption" became a permanent part of the manufacturing vocabulary after the crisis.

And it highlights the need for manufacturers to rethink their supply chain strategies in a climate of instability, a new PwC report warns.

"Supply chains and the manufacturing industry have been on a rollercoaster ride, hit by skyrocketing prices of oil and commodities, high levels of debt, weak demand and tight credit," says Barry Misthal, global leader of PwC's Industrial Manufacturing practice.

Even after all of that, many manufacturers haven't determined "who their high-risk suppliers are or where the cracks and loose chinks are in their supply chains," Misthal asserts.

Five Key Areas

The financial stability of suppliers will be one crucial factor affecting the industry, the report explains. If interest rates rise, for example, it will be much tougher for businesses to service loans.

Firms also will need to work on attracting the right employees, who can adapt their skills and be flexible, the PwC report says.

PwC has identified five key areas for manufacturers to take heed of in today's turbulent times:

  • Skills and talent.
  • Addressing lifecycle opportunities.
  • Linking demand planning with the rest of the supply chain. Identifying and acting on supply chain risks.
  • Stronger collaboration between suppliers and customers.
"As well as addressing shortages in STEM (science, technology, engineering and mathematics), businesses will need to build new, stronger workforces that can work together as a team and collaborate right across a supply chain," PwC says.

A Checklist for Preventing Supply Chain Risk

The PwC report offers this checklist of questions for preventing supply chain risk:

  • Have you developed a set of leading-risk indicators that is forward-looking, based on a continuous monitoring and analysis of conditions?
  • Are you recognizing all the different types of risk that could affect your supply chain, including factors such as natural disasters, civil and political unrest or strike action?
  • Are risks being matched with appropriate remedial measures such as inventory cushions, dual sourcing or dialogue with suppliers on alternative production?
  • Do you have effective systems in place across your supply chain to pick up and act on early-warning signs or -- in the case of sudden-onset risk -- to deliver real-time information and enable fast implementation of preventive measures?
  • Is the financial stability of your suppliers on your radar screen? Do you have the screening systems in place to assess this factor?

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