Planning for the Unplannable: What Supply Chain Leaders Should Be Doing Now
In the past five months, uncertainty around tariffs has upended the supply-chain landscape. What should manufacturers be doing now to shore up their supply base when policy can change with the tides? We asked a pair of well-respected manufacturing supply-chain experts for their insights on strengthening supplier relationships, increasing flexibility, planning for the unplannable and digging deep to find supply-chain vulnerabilities.
Our experts:
Darrell Edwards has more than three decades of global operations and supply chain experience, delivering significant value within consumer product industries. Before joining the faculty of the University of Tennessee’s Haslam College of Business, he was chief supply chain officer and chief operating officer at La-Z-Boy Inc.
Ji Li is a supply chain advisor with J&J Investment and Consulting. He has more than two decades’ experience navigating complex supply chains across the aerospace, medical and technology sectors. A former supply-chain director for Boeing, he oversaw construction of the Zhoushan (China) 737 Completion Center, Boeing’s first overseas manufacturing on the commercial side.
IndustryWeek: What supply-chain questions should manufacturers be asking right now?
Darrell Edwards: One of the first things I would ask is, where are my vulnerabilities? And how can I address that quickly? I’d also be looking at, how do I flex up and down my manufacturing capacity? That holds true whether I manufacture domestically, internationally or even contract it. I’d also be looking deep into my supply base—Tier 1, Tier 2, Tier 3. How will the situation impact them, and will that ultimately flow through my price? One more thing to ask: Can I streamline my product line? In other words, can I reduce my SKU base? That might allow me to make more things domestically versus internationally.
The other thing is, sometimes it helps to relook at your manufacturing and supply base and say, “Are we as efficient as we need to be? Can we improve?” Every so often, it helps to reimagine your manufacturing footprint, your supply base, the way you do things, whether the lean tools still work. Over time, through product introductions, through market shifts, things can happen and we become not as efficient as we need to be. Every year or so, it helps to do a lean assessment to make sure we’re still as lean, as successful, as efficient as we need to be.
Ji Li: Often, I find people trying to find a resolution when they are in crisis mode and there isn’t much of a good solution. If they are bleeding, they have to stop the bleeding. They have to understand what products are being impacted by the tariffs, and what that means to their business. It means connecting with customers, understanding what the demand is going to look like in the near and medium term.
During COVID, I worked with a company that was doing fairly big manufacturing in China. There was a good reason—it was a cost consideration. I looked at what the most critical components were in their supply chain, and we started to bring the manufacturing of some of those back to the U.S. And we started to qualify suppliers in Vietnam on the other critical components. So today, in this huge trade war, they are in a much better position. The effect is very limited. And they also have options to move around between Mexico and U.S. production, and decide how much sourcing they’re going to do in China vs. Vietnam. They still have a fairly large market in China. They have options.
How should companies be talking with their suppliers?
Li: It’s important to understand the supplier’s financial situation. I would be very worried about the viability of their business. During COVID, I saw some suppliers that went under, and that was a surprise to their customers. I would say the tariffs are probably even a bigger financial impact to some suppliers. So that’s certainly something I would put on the radar in the short-term. But really, we need to go back to the fundamentals of managing supplier relationships. It starts with, are we working with the right suppliers? Do we have the right relationship, intentions that we plan to maintain and manage? Are we being transparent about business conditions and not trying to take advantage of suppliers during a difficult time? And then taking a more collaborative approach because suppliers don’t know what’s going on with our business.
Another thing I learned during COVID is, the supplier has other customers having similar problems, so some suppliers have good ideas. So when I visit, I ask them, “Hey what do you guys do in this situation? What do you see your customers doing?” It’s become a bit of benchmarking, and I pick up some creative ideas that I can apply to my business.
Sometimes I even work with suppliers to develop a collaboration agreement to encourage them to make an investment in a country where we’d like them to make components for us. I personally took the owner of a key supplier to Mexico and showed him around an industrial park with similar businesses, and basically opened the door for him to open his factory in Mexico. We can continue to buy from them, and they can help us with nearshoring. It gives me more options that I can navigate.
Edwards: If it’s critical components for your business, you probably have developed that supply base and have some pretty deep trust and understanding. You probably have helped develop a multi-supply base in certain geographies of the world. You share forecasts, you share plans, you share the fact that they need to build flex capacity—that their business can flex up or down depending on the situation. It’s more of a partnership than a transaction.
Do suppliers generally have a difficult time with transparency?
Li: Transparency goes both ways. We are transparent about the challenges we face in our market, and also expect suppliers to be transparent about their business. Are they struggling, or are they doing OK? What’s the cash flow look like?
These things go into strategic sourcing. Some suppliers are unwilling to be transparent, and with those it becomes more transactional. We’re not going to invest as much time, money, resources or wisdom. Of course, the size of the company matters—are they large enough to have the flexibility to diversity their manufacturing? But some larger suppliers are not very transparent, like one of our top 20 suppliers I visited a couple of years back. I looked at their factory—you can very quickly assess their capacity, their utilization. And then asked some questions about how their business was doing this year compared with a few years ago. My conclusion was, their situation looks risky, so I asked my team to go back and do more assessment. And we quickly realized, their financials were in pretty bad shape. That at least gave us time to start thinking about what we were going to do. Two years later, it does turn out to be what we anticipated. But we’ve been working on a transition in the last two years that really mitigates our risk.
How do you spot supply-chain vulnerabilities?
Edwards: As part of your overall strategy, you ought to be doing scenario-based planning. Pick certain parts of your supply chain and manufacturing base and pressure-test against vulnerabilities. Instead of “Hey, we’ve got a problem,” let’s find out where those potential problems are long before we need to deal with them.
There should be a standard time, once or twice a year, where you put scenario planning on the calendar. And you run those scenarios with input from all your key stakeholders, both inside and outside your operations. You follow a standard process and do a post-mortem afterward. What went well, and what didn’t’ go so well? And given a similar situation, what will we do differently next time? Maybe it’s: We don’t have many backup plans in this area. Or: Our supply base is narrow in this particular product line.
You start to build a database. If you do these scenario-based plans a couple of times a year, in four, five or six years, all of a sudden you have some great knowledge that you can draw upon. You’ll have a playbook. Trust me, it will never play out like you practiced, but I can assure you, you’ll be better off having thought through it and planned, then if you hadn’t.
Do you see any changes in the ways people are dealing with their suppliers?
Edwards: You hear the terms “agile” and “resilient”—that’s what we’re talking about today. The consumer is becoming more demanding. They expect better, faster, cheaper. You have to think in terms of multiple geography and sourcing, to be able to quickly make decisions and maneuver. Our portfolio is probably going to be comprised of more domestic manufacturing than previously. We have to build flexibility within the manufacturing footprints, where we can flex up if times are really difficult, or some event happens globally—be it natural disaster, geopolitical or something else. We have to be able to flex down depending on the business environment and still maintain a certain cost. And as we move things back home, some of that will simultaneously be augmented through technology and automation. We’ll automate some tasks and repurpose the brain power, the intelligence, to do more value-added tasks. The footprint looks a lot different in the next 20 years than it did 20 years ago.
That being said, building manufacturing plants and developing suppliers, those aren’t overnight plays. So it has to be more of a strategy, and that strategy can be phased. Phase one is, we’re going to develop a multi-source, multi-geography supply base. Phase two, we’re reshoring—and that can be tiered in the way you approach it.
How can technology help with flexibility?
Li: I always view technology as the enabler. It isn’t necessarily the solution. The right approach on technology adoption and implementation is to really understand what problem the business is facing that you want to solve. Understand the problem, define it clearly, and then you have an angle on what the outcome is going to look like and the solution to solve your problem. Chances are, it’s probably a combination of technology and a skill set or talent that the company doesn’t have.
Edwards: Automating certain tasks can help. You can run your automated equipment on night shifts, on weekends. Additionally, if you have automation built into your manufacturing capacity domestically, you’re able then to flex more with people.
We probably have better visibility and predictive analytics tools from a planning, procurement, manufacturing standpoint than we’ve ever had. Information is power, and that visibility is a game-changer. But that being said, visibility is a tie-breaker because it’s still a people business, and at the end of the day, it’s still a leadership game.
