Grinding to a Halt
The global impact of COVID-19 has highlighted significant vulnerabilities in the manufacturing supply chain for manufacturers around the world. In addition to price fluctuations, geo-political variabilities, etc. we now have to emphasize disease outbreaks on the list of potential crises that can disrupt or, as recently shown, completely shut down production supply chains.
We’ve seen manufacturers resort to sending people on commercial flights to try to hand carry parts and components out of quarantined countries to keep production running. Rushed orders from local suppliers for sub-components are done at exorbitant prices. Sadly, in quite a number of cases, even if certain factories are able to produce with available manpower, the lack of raw materials/parts from limited suppliers in quarantined areas are forced to shut down with nothing to produce with.
Not a Matter of Trust
The buyer-supplier relationship has always had a strong element of trust implied. From the ability to deliver on-time to the quality of the components delivered, these are elements that require time to build and reinforce. However, this recent outbreak has shown to us that even if trust is at a full 100%, the literal shut down of a region can render even the most trustworthy supplier to fail at no fault of their own. Therefore, a certain balance of supply chain diversification is absolutely necessary to minimize disruptions.
Wide vs Tall
It is important to note that having limited strong suppliers enables tighter production and research collaboration. Therefore, when it comes to having a wide vs a tall supply chain, it is not a matter of one or the other but identifying a proper balance across the spectrum. However, one lesson that this outbreak has taught is that having only a single source, or multiple sources but from just a single country, is no longer a properly risk mitigated supply chain strategy.
Therefore, as supply chain managers start to increase the number of suppliers across different countries to properly diversify risk, the need for digital tool sets to provide visibility and transparency across these suppliers becomes critical. Without them, the sheer numbers and complexity of the supply chain will introduce blind spots, inefficiencies and delays.
Visibility & Control
Diversification of the supply chain will help mitigate risk but will also increase complexity and management/oversight costs if improper tools are used. Typically, large supply chains may have some basic software solutions to track orders/PO/DO/etc. but the bulk of the processes, decision-making and coordination is still done manually by supply chain coordinators and procurement personnel. This can range from a few people to an army for larger organizations bringing about massive costs and high rates of misalignment and mistakes. Much of the industry still relies on the literal picking up of a phone to call a supplier to check on production status to manually balancing and re-orienting capacity on Post-it Notes on a board. Increasing the number of suppliers is typically something most organizations don’t want to do and for good reason based on the above headaches.
Yet diversification is a must in order to balance supply chain risk, in which case we must start turning to digitalization for supply chain visibility and control. Visibility starts at the production floor, this means that suppliers should be providing real-time information regarding orders and jobs that are placed to them in order to provide the buyer with information on metrics ranging from, expected completion time, number of units produced, quality and scrap rate information, etc. This enables the buyer to react on the spot, granting capabilities such as request for early delivery of available units, check on available capacity for ramp up, view audit records and traceability reports, etc. all without picking up a phone. This means suppliers must begin the transition towards digitalization in order to keep up with the demands of buyers who are ever more rigorous in data transparency requirements.
Additionally, as the number of suppliers increases, buyers need to transition away from leveraging manual excel sheets for production planning and supplier oversight and move into a data driven control platform for cross country multi-supplier coordination. This is a dual effort on driving suppliers towards using a digital system capable of sending real-time data, and a buyer’s organizational shift away from traditional static planning tools to one that is able to view, control and adjust orders, view and redirect capacity, and provide production traceability for reporting and auditing.
Taking Next Steps
Any slowdown in a manufacturing environment should always be taken as an opportunity to perform improvements. Find time to work with close suppliers and new suppliers to discuss digitalization and real-time data reporting. Start to perform internal adjustments to the way procurement manages scheduling, capacity analysis and supply chain diversification. Test out supply chain digitalization solutions and start the internal transformation necessary to adjust to this new environment of uncertainty in the global manufacturing supply chain in order to mitigate future risks.
For information on helping your suppliers digitalize with a free lightweight MES, check out Arcstone’s arc.lite solution.
If your organization is ready to start transforming the way your supply chain is being managed and want full end-to-end transparency of all your suppliers, check out Arcstone’s arc.net solution.