The legacy focus on low, per-unit cost of production that led to offshoring continues to haunt U.S. manufacturers through a cascading series of supply chain disruptions – shortages of materials, failed deliveries, unreliable schedules, and massive increases in shipping costs. Smaller manufacturers must now prioritize reliability as much or more than price, and they also should be seeking partners that can add value to their supply chain and operation.
One of the biggest recent developments in supply chain management is the desire for increased visibility across the tiers of the supply chain. Aside from pricing, manufacturers traditionally have not had to be concerned with forces upstream or downstream. The manufacturing ecosystem also has closely guarded proprietary information about supplies and partners. You can only imagine what information old-school manufacturers took to their graves. But now, you want to ensure your entire supply chain is reliable, secure and resilient. Transparency is crucial when something goes wrong that might be detrimental to your business.
Visibility into the Supply Chain Is Coming
If you have visibility to accurate information on supplier inventory and lead time, you can better identify the supplies where you are at risk of running out of stock. For example, disruptions led one manufacturer to a desperate search to find a single barrel of a specific chemical in order to avoid shutting down its line. With proper transparency, the manufacturer could have addressed the issue in a number of ways.
Changes are coming in supply-chain visibility. The food industry has been at the forefront of this issue as it is under pressure to ensure its supply chain is visible and secure in order to be able to trace and respond to foodborne illness outbreaks. Other heavily regulated industries such as aviation and medical devices will be early adopters into accounting for and comprehensively tracing their sourcing. Ultimately, this traceability will benefit all manufacturers.
A number of resources and online marketplaces are being developed to help manufacturers improve their visibility into their supply chain. Many different technologies are under consideration to help address these issues. In fact, the National Institute of Standards and Technology (NIST) recently released a report that looks at how blockchain and related technologies may be able to play a role in improving traceability in the increasingly complex supply chain.
Self Assessments: Knowing Your Current State Can Be a Strength
Before you address your supply chain issues, you should be aware of your current business realities. You must understand what your gaps are in order to address how to close them. One surefire way to begin documenting your current state is by identifying your risks. Then you can use that information to create a business continuity and recovery plan. It also will help you engage your team to identify and gain alignment for what are non-negotiables, critical areas and what might be a buffer.
The most obvious possible issue in your supply chain is over reliance on a single source, either upstream in terms of how you acquire materials and parts or downstream in terms of who is paying you for your services.
There are a growing number of assessments available to help you drill down into ways to build your resilience, including:
- SWOT: In the fast evolving supply chain world, threats may have changed a lot since your last analysis. Can you still meet turnaround times? But disruptions can also bring opportunities. Has your team brainstormed about opportunities from the struggles of key competitors? Are there emerging markets to pursue?
- Business continuity: This goes beyond disaster preparedness to include scenarios such as a disruption of a key supplier. How might you respond? How will this impact your cash flow?
- Current supplier accountability: If you have not established scoring mechanisms or key performance indicators (KPIs) for your suppliers, you might want to do so. How do they score? Would you be better off swapping out a partner? Are you taking steps to ensure you maintain your best partners? Supplier scouting is a lot like workforce recruiting; you should never turn it off.
Assessments can help you understand how and where to be proactive versus reactive. For example, categorizing your components and materials into categories that require different procurement strategies may lead you to establish more long-term agreements for critical materials. For components where you are at risk of bottlenecks, you might ensure multiple suppliers and even look at redesigning how you make the parts.
Scouting for New or Additional Suppliers
Many manufacturers are in the process of changing suppliers because they have to – market conditions or availability might be forcing their hand. But you should always be thinking about resilience and risk management. You know your immediate needs, but it’s also a best practice to revisit your potential future needs and what changes you anticipate around the next corner.
When it comes time to vet and qualify potential suppliers, the material, product, or service is just a starting point. Think about what a potential customer demands from your operation before signing on. Are you looking for a transaction or a relationship? You should be looking into, among many things, a supplier’s record for:
Of course in the real world you are often making decisions with incomplete or inconsistent information. Small companies, especially, often don't have a lot of clout so they often have to take the information they can glean from interactions with prospective suppliers or customers and do the best they can.
Be sure to assess how your capabilities fit with your potential suppliers’ capabilities and how you intake or provide goods and information. For example, if one of you relies on 3D CAD drawings while the other insists on physical drawings, that could be a sign of different overall approaches and a poor fit.
Embrace the Mindsets of Continuous Improvement and Flexibility
If you are like many smaller manufacturers, you have been squeezing out the wiggle room in your operation and running on tight margins for inventory and lead time. A lot of manufacturers have been burned recently with inventory issues. Being flexible could mean going outside your purchasing norms to ensure you have a “safety stock” of a particularly hard-to-source material. All inventory is not created equal.
Likewise, your team or a partner might be able to find a way to do something that costs a little bit less, such as using different materials or changing the order of assembly. The mindset of continuous improvement begins with dialogue and listening. It could include:
- Engaging your team to review internal aspects and external considerations
- Meeting customers where they are and what is appropriate in their environment
- Leveraging relationships because good partners will work with you
Supply Chain Risk Management Gives You More Control
Supply chain risk management is a process of putting in time to evaluate, tinker and adjust. Nothing happens overnight. But in the spirit of continuous improvement, small actions can combine to move the needle. A handful of little changes, tested over time can result in substantial benefits for you, your customers and your team.
Experts at your local MEP Center can help you be more proactive and less reactive with your supply chain. Let us help you get started.
About the author
Michael has over 2 decades of experience in supply chain risk management and technology-based economic development. His areas of technical emphasis and strategic engagement include aviation and aerospace, defense, medical devices, PPE, and power generation manufacturing, including developing supplier and customer assessments and tools such as the Connex Florida and Connex Marketplace supplier connection platforms for manufacturers.