What manufacturers should stop doing today to create better supply chains for tomorrow.
By Bill Berutti, Plex CEO
There’s only one word to describe today’s state of supply chains across the globe. Unstable. The economic turmoil caused by the pandemic and subsequent disruptions (the Suez Canal blockage, semiconductor shortages, etc.) has exposed vulnerabilities in supply chains and left many questioning what supply chains of the future will look like. In short, supply chains as we know them will never be the same. That answer may be unsettling but at the end of the day, those vulnerabilities were always there and needed to be addressed. Unfortunately, it took a once-in-a-lifetime global pandemic and other extreme disruptions to garner the much needed attention.
As manufacturers take a fresh look at their supply chains and what they plan to do next, it might be just as important, if not more important, to think about what they must stop doing. Here are three things manufacturers should stop doing in order to modernize the supply chain of tomorrow:
Making “No Decision-Decisions”
As human beings, our instinct is to avoid mistakes and failure, but making the wrong decision can often be better than not making any decision at all. Bad decisions can help accomplish more when they cause you to course correct. If something is done – a decision is made – that action propels you forward. If that decision is wrong, then you fail fast, learn, correct, and move forward.
For organizations today, many “no decision-decisions” are the result of having all of the available data and not knowing where to begin. To overcome this sense of analysis paralysis, manufacturers need to have the right tools that provide the right data needed at the right time. For example, supply chain planning tools leverage real-time insights across the business, coupled with inventory visibility help leaders make informed decisions with confidence.Having the right data on hand helps any decision making that needs to be made.
For manufacturing – an industry that can be very complex – another key to the decision-making process is to identify a decision-maker at the team level. That way, there is no confusion when it comes to who is responsible for making the final call. In order to reshape the modern supply chain, decisions must be made versus waiting for a challenging situation to arise and you’re caught flat footed. Making a decision – whether it’s implementing a new technology or making a strategic pivot – is the first step.
Supporting Single-Source Dependency
When supply chains are disrupted, those who single source, in particular, suffer the most. You are left vulnerable when you depend on a single supplier somewhere deep in your network for a crucial component or material. If that supplier produces the item in only one plant or one country, your disruption risks are even higher.
For example, in 1998, supply problems at Ford resulted in the three-day shutdown of the Fiesta and Puma manufacturing facilities in Cologne and Dagenham, Germany. The source of the supply problem was a computer glitch at Ford’s provider of door and trunk latches. While temporary, those three days cost Ford £70M – approximately $95M – in labor costs and the production of about 7000 vehicles. Fast forward to March 2011. Japan – considered by some the epicenter of high-tech manufacturing – was hit by a record-breaking earthquake and tsunami disaster, prompting manufacturers to scramble to replace suppliers, resulting in production delays, product shortages and higher prices. And in 2020, as demand for PPE (personal protective equipment) grew the US found itself in an insecure sourcing situation, relying heavily on a limited number of foreign sources – countries also fighting COVID with healthcare supplies drying up before they could be shipped out.
These are just a handful examples of how single-source dependency has been an industry-wide problem – even before the pandemic hit – but the consequences remain costly. The good news is that many organizations are becoming more aware of this problem and want to make changes. A McKinsey survey shows that 93% of supply chain leaders are looking to improve resilience by dual sourcing (53%), increasing inventory of critical items (47%), nearshoring and increasing their supply base (40%), and regionalizing supply chains (38%). More recently, according to a March 2020 Thomas Industrial survey, 64% of companies across the manufacturing and industrial sectors “are likely to bring manufacturing production and sourcing back to North America,” to avoid difficulties in the future.
When supply chain diversification is embraced the benefits are substantial. For example, supply chain diversification enables flexibility, which allows you to respond quickly to changing market trends and consumer demands – critical for any industry today that is navigating uncertain market conditions and evolving consumer behavior. Furthermore, it helps provide quality customer service. Diversifying the supply chain not only helps to decrease backorders, but also ensures you will meet demand in case of supply shortage. Implementing or expanding supplier diversity will require investment from an organization, but the potential benefits – better competitive positioning and improved brand reputation etc. – outweigh potential risks including potential plant shut-downs due to lack of parts and order delays. This leads to the final piece of advice.
Weighing Cost over Reward
Innovation and technology investments have the potential to upend every aspect of the supply chain but the cost – or perceived cost – of implementation can sometimes be a barrier for some manufacturers. Implementing technology should be seen as a strategic investment that can mitigate risk versus a purely depreciating, necessary evil capital expense. Many choose to put off expenditures like a new server or new computers, hanging on to aging hardware and software far too long. What they don’t realize is that this is actually costing them more – in terms of security risks, lack of customer confidence, lower productivity, and increased maintenance costs required to keep old devices running past their expiration date. A survey found that U.S. businesses lose up to $1.8 billion each year in wasted productivity due to obsolete technology. As devices age, they run more slowly, crash more often, and require more maintenance, resulting in additional downtime.
Some examples of technology investments that would enhance supply chain processes include:
- Blockchain: This technology brings improved visibility and transparency to supply chain processes.
- IIoT: Connected devices and sensors can enable manufacturers to communicate information and deliver insights that will upend traditional supply chain practices.
- Artificial Intelligence/Machine Learning: Advanced analytics can help drive automation and deliver insights that promote efficiencies – saving time and money.
The supply chains of the future will need to be characterized by both resilience and responsibility and in order to do so, changes will need to be made. As previously mentioned, the first step is actually making a decision. Manufacturers need to identify the solutions that improve supply chain processes. From tools that help forecast and plan in real-time to finding better ways to adjust for any number of global variables that may impact suppliers, it’s time to adopt a new vision suitable to the realities of the new era.