It is crucial for American companies to make the right decision on where to outsource manufacturing to have a secure supply chain. Choosing the wrong company or a company in the wrong location as a supplier can mean the difference between success and failure as a company. Companies need to learn how important it is to carefully consider all of the factors that impact the decision of where to source manufacturing to be able to handle risks and disruptions in the supply chain to maintain operations in the event of natural disasters or unforeseen events such as the COVID-19 pandemic, as well as prepare for the future.
The Association of Manufacturing Excellence (AME) and Lean DNA “conducted market research to explore the specific areas in which manufacturers are looking to digitally invest, the top challenges inhibiting transformation, and the biggest opportunities on the table for 2022 and beyond.” On February 18, 2022, they released a report titled, “State of Supply Chain in the New Shortage Economy” that presented the results of their research on the supply chain shortages manufacturers have been experiencing as a result of the COVID-19 pandemic.
The research revealed that new market dynamics are making it evident that existing processes are no longer sufficient. Some of these new dynamics are:
- Supply chains have become progressively more complex
- Manufacturers are dealing with increasingly customized orders from customers
- Complex sub-assemblies and parts coming from increasingly global suppliers
- Burdened planning and procurement teams
- Volatile demand
- Global materials shortages
The report states that because of the COVID-19 pandemic, “a majority of manufacturers feel increased pressure to digitally transform” [75%] and “more than three-fourths, also recognize the opportunity to improve customer satisfaction and reduce the number of operational issues through digital transformation. They anticipate that digitization, advanced analytics, and predictive intelligence are their best opportunities to achieve that.”
The report explained that digital transformation means:
- Deploying advanced analytics and predictive intelligence (54.5%)
- Ditching manual spreadsheets (19.5%)
- Deploying data analytics and/or Business Intelligence (BI) (10.4%)
- Automating and integrating supply chain functions (10.4%)
- Inventing in ERP/IBP planning and scheduling tools (5.2%)
The results of the survey showed “glaring technology and process gaps that need to be addressed
first before the majority of manufacturers can truly adopt advanced and modern digital technologies. Overall, survey participants responded that they were still very early in their digital transformation journeys…” The biggest technology gaps in technology were identified as:
- Reliance on spreadsheets and manual processes (32.5%)
- Lack of connectedness between ERP, MRP, and more (19.5%)
- Visibility into real-time supply and demand shifts (14.5%)
- Inability to predict future shifts and make proactive decisions to counter issues (13%)
- Inability to understand which inventory actions have biggest impact (11.5%)
- Lack of skilled personnel (9%)
Manufacturers experienced the following challenges caused by the COVID-19 pandemic:
- 86% Supply chain Disruptions
- 52% Demand Forecasting Difficulties
- 49% Working Remotely
- 42% Demand Increases/Part and Inventory Shortages
- 27% Demand Increases/Excess Inventory
- 26% Visibility into Inventory and Shortage Data across sites and ERPs
Key findings of the survey were:
- 65% of manufacturers are increasing visibility into factory inventory levels and requirements because of COVID-19, with an eye towards managing shortages.
- 95% of manufacturers are investing in factory automation, but most haven’t automated the factory’s critical data and intelligence aspects.
The top hurdles to factory transformation were identified as:
- lack of expertise (60%)
- lack of resources (46%)
- limited budget (43%)
- ineffective change management (42%).
The survey identified the following top priorities for the manufacturers surveyed: “Shortages (47%) and improving inventory turnover (43%), yet procurement and supply chain teams
don’t have the information they need to increase factory efficiency.”
The authors recommended that manufacturers “address this problem by having planning and procurement teams, and even suppliers, work together more efficiently…Digital transformation doesn’t mean rebuilding the technology stack from scratch, rather it can mean leveraging data and harnessing insights from existing systems and investments.”
Specifically, they recommended the follow three steps:
Understand – “collating data from ERP, MRP, and MPS systems, manufacturers can gain visibility across their material inventory levels and see the impact across their factory operations processes from planning to purchasing to manufacturing.”
Prioritize – sift through data “to isolate the most impactful insights and actions that will most
affect business results…identify and resolve critical shortages that prevent production from moving forward…identifying SKUs and component parts that have the highest monetary impact helps buyers to prioritize their time.”
Collaborate – Having a single, up-to-date view of materials inventory and demand is key to having
teams work efficiently together…planning and procurement can work in unison to optimize production, improve cash flow, reduce costs, and mitigate risk in delivering on-time. Collaboration is not only necessary internally within manufacturing organizations, but also with suppliers.”
What was missing from this survey was where their suppliers were located – in the U. S. or another country. The survey would have been a good opportunity to learn how many manufacturers had suppliers in China and/or whether or not manufacturers had reshored manufacturing to the U.S. from China or another country. We know that there were many more supply chain disruptions occurring from goods being shipped by container ships from China, especially last fall. In fact, the Reshoring Initiative lists long lead times and supply chain disruptions in the top ten reasons for reshoring manufacturing.
It is important to consider the geographical location of suppliers when a company seeks to establish a secure supply chain and mitigate disruptions as conditions change due to unexpected crises such as COVID-19, natural disasters, and transportation bottlenecks. Some of the advantages of prioritizing “Buy American” and “Buy Local” as a guideline in selection of suppliers are:
- Faster lead times: 49-50% reduction
- Delivery accuracy: 30-40% improved
- Smoother Design Changes
- Lower Cost of Inventory
- Higher Quality
- No Intellectual Property Infringement
It is also important to consider the technological depth, reserve capacity, and responsiveness of suppliers. These capabilities are more readily available from American companies. When demand is volatile, the ability of a supplier to either ramp up or slow down production will affect inventory costs and delivery performance to customers. Since many Chinese companies require high volume orders to meet target prices, this is difficult to obtain from Chinese suppliers.
I highly recommend that American manufacturers carefully consider these factors in selecting suppliers in the future if they want to have a more secure supply chain.