In today’s world, hardly a day goes by when we don’t hear the words “supply chain” in the news.
Many of us in manufacturing have been dealing with supply chain issues for years. However, the COVID-19 pandemic has made supply chain issues a newsworthy story. It also has shown that many manufacturers were not able to respond or react quickly to avoid shutdowns at their plants, which impacted their customers.
In January, the Institute for Supply Management reported a Purchasing Managers’ Index of 60.7 percent for December 2020, showing a continuation of an eight-month increase in demand for U.S. manufacturers.
Is your supply chain ready for this? How can you improve your supply-chain resiliency?
Supply chain visibility
To comprehend the complexity of your supply chain, you must first understand each part that is needed within your operation to manufacture the products your customers need.
Start by identifying each product and developing a bill of materials (BOM) and a part master that details each part, its origin, quantity needed and potential part substitutions. Enterprise resource planning (ERP) or material resource planning (MRP) systems are excellent tools to document this information.
ERP and MRP systems allow you to establish unique identifiers for each part, which then can be rolled into complete or subassemblies. This gives you a clear view of what is needed to manufacture your customers’ products.
You also can add detailed information about the product origin, such as where the raw material for a piece of sheet metal is mined, refined and rolled, as well as how it gets to your doorstep. The more details you have in your BOM and documented in your ERP/MRP system, the more visibility you gain regarding your supply chain. Next, start flagging parts that are critical or for which you only have one supplier. Set safety stocks and review cycles to monitor those parts more closely.
Create relationships with backup suppliers in the event your primary supplier is unable to fill your needs. Consider obtaining a portion of your regular supplies from those backup suppliers to solidify your working relationship to support any future needs.
In addition, you need to consider your suppliers’ locations. This is critical in the event of natural disasters, geopolitical events, trade wars and other disruptions that could impact your suppliers.
If your suppliers are all located in one area, a single event could slow or stop your supply. For most natural disasters, sourcing regionally and nationally will reduce the potential impact. However, geopolitical events or large-scale catastrophes can impact national and regional sourcing at the same time. It is critical to understand not only the part but where the components to manufacture that part come from.
Before you bring on additional suppliers, make sure you understand any customer requirements regarding raw materials. If your customers must certify your suppliers, ensure you allow sufficient time for this to occur.
Once you select suppliers, ask them to show you what they have in place to protect their supply chains and how they react and respond if their supply chain is disrupted. Ask them to develop a notification system with your procurement staff that ensures quick and accurate communication. In addition, establish a communication plan to notify your customers of any issues, how they will be impacted and what you are doing to remedy the issues.
We learned from COVID-19 that employees are an essential resource for most manufacturing operations. Consider cross-training your team so they can fill multiple functions if needed.
Do you have funding set aside to store excess supplies if needed? Do you have adequate storage space to house additional materials until manufacturing needs exhaust the surplus?
Can you adjust your retail channel to provide customers what they need in the way they want it? Can you adapt your distribution model? COVID-19 has caused an accelerated shift in the flattening of the retail channel. Customers are looking to purchase directly from the source and are looking to do so in a specific way.
Now that you have identified and established the criticality for each component, you need to see if your system can manage an issue or crisis to your supply chain. We call that stress testing.
Pick a day of the week and notify your procurement staff that an event has occurred. For example, let’s say that the Panama Canal is closed for months due to a lock failure and your manufacturing facility is located in Oregon. This will prevent your supplies from Europe and Africa from arriving.
How much inventory do you have? Can you source all or some of those supplies from other areas? Do you have additional suppliers that can help? Can you see if supplies can be rerouted to ports on the East Coast and shipped via truck or rail? What are the potential delays? Can you locate supplies within Oregon, the United States or Canada? A stress test will help determine if your supply chain is robust enough or if you need to start implementing backup suppliers or resources.
Aaron Stamm is Acuity’s retail consultant, bringing over 30 years of retail and distribution knowledge and expertise. Mike Schlagenhaufer brings over 40 years of manufacturing insight to his position as manufacturing consultant at Acuity.