2007 And Beyond -- Supply Chain Strategies For U.S. Manufacturers

Oct. 28, 2006
China Sourcing; Innovation; Multiple Supply Chains

Rethinking The China Sourcing Strategy

Manufacturing in China has its perks. A plentiful pool of low wage workers with a growing infrastructure to export products inexpensively has drawn many U.S. manufacturers to both source components from China as well as purchase assembled products. With the recent increase in the price of fuel that doesn't show any signs of abating anytime soon, reverse migration may become more common with manufacturers.

Experienced supply chain managers are now looking at the total landed cost of sourcing from China with a different perspective and realizing that their initial assumptions and cost savings plans for international sourcing may have been overestimated especially in light of the current rise in fuel costs.

It's not only the added fuel costs but also the lag time between customer orders and the response time from the overseas manufacturer which can leave products sitting on ships for six weeks, that is causing manufacturers to rethink their strategies. These factors lead to missed sales, unacceptable service levels and added inventory costs. Add to that the costs of duties and the not so uncommon delays in custom clearance, it's getting hard to respond quickly to customer demand. Additionally difficulty in communication can impede quick response times necessary to make design changes or engineering spec changes.

Frustrated by unmet expectations of international sourcing, manufacturers are questioning the real cost of moving manufacturing away from the point of consumption. More companies are reevaluating the benefits vs. costs overseas manufacturing. While savvy companies will continue to expand manufacturing in China -- especially in products where low costs drive sales. Companies cannot overlook the tremendous advantages China offers especially for high volume, low weight products, but careful evaluation should be given to domestic and cross-border opportunities.

Rewards will go the manufacturers that have the right products at the right place at the right time and at the right cost.

Innovation Will Be The Key To Future Growth

Build-to-order products that fill market niches, especially those equipped with the newest technology offer a home-court advantage. Building flexibility into product design, manufacturing and the supply chain are a hard combination to beat.

End users continue to become more demanding and companies that are innovative in creating ways to meet or exceed customer expectations will set the bar for the competition. Supply chains that are seamless and entirely driven by the end customers will provide an edge in the market. Being able to move on a dime as new product demand changes and responding immediately to service parts requests is a must in today's marketplace. The ability to address supply chain risks such as natural disasters, security threats and other unplanned supply chain interruptions is a yardstick of a company's resilience.

Supply chain flexibility will enhance companies' abilities to identify new products and services. As companies get closer to their customers and come to better understand market drives and future needs, new product ideas emerge.

Manufacturers have already invested heavily in reducing operating costs and most have removed all the low hanging fruit. With the lean implementation, manufacturers have freed up space and assets often resulting in additional capacity. Now they need to invest in methods to increase sales to help leverage those operational cost savings.

One method to help determine where to invest is to work with customers to identify unmet needs. One untapped market is customization or bundling of products. It can be substantially more lucrative than mass production of commodity products. Additionally a portfolio of products built on smaller runs can increase supply chain flexibility.

The bottom line is that innovative products are keys to growth of manufacturing in America.

Multiple Supply Chains

Making the supply chain more productive will be done through multiple supply chains.

Most typical manufacturers supply chains look like this; first a company sources components for assemblies, manufactures products in its factories, then it ships products in LTL (define term) or full truckloads to distribution centers scattered across the country. Finally the products are shipped from distribution centers to customers.

Essentially a one size fits all strategy. Products of significantly different value and quantities move alongside each other with no regard to impact to the business. Why not ship stock high value products directly to customers rather than stocking in multiple warehouses? Safety stocks for these products may still be needed, but doesn't it make sense to ship daily orders directing from the factory eliminating the need to transport them first to the warehouse? This is especially true for service parts or high end products like circuit boards or any build-to-order products.

By creating a second supply chain for select products, companies can save time, product handling, shipping and warehouse costs all the while increasing customer satisfaction.

Looking beyond the traditional one size fits all supply chain model makes good business sense. Often manufactures set up supply chains based on the production of commodity products where it was more efficient to heavy low-value products (not sure what this phrase means) using full truckloads. As the business changed, supply chain were not reevaluated to maximize current needs. For today's supply chains, not only does one size not fit all products, but often it is the wrong size.

Linda M. Taylor is in the Industry Marketing division of FedEx Corp. FedEx Corp. provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. The company offers integrated business applications through operating companies competing collectively and managed collaborative, under the FedEx brand. For more information, visit www.fedex.com/us/about.

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