Chain Reaction: How Manufacturing Supply Improvements Will Grow Customer Relationships Featuring Exclusive Insights from 275 Manufacturers Aptean Manufacturing ERP
Global events created the perfect storm of material shortages, price rises and transportation delays. All of which have affected manufacturing output – not just during times of difficulty, but as trading conditions have returned to normal and customer demand has increased.
To understand how effectively manufacturing supply networks are functioning right now and how companies are looking to increase their supply chain resilience, Aptean surveyed 275 North American manufacturers. And we’ll be sharing the results of our research in this whitepaper.
In addition to benchmarking manufacturers’ supply chain capabilities, our study revealed a clear correlation between current performance and digital transformation. We’ll be taking a closer look at how industry leaders are incorporating supply chain management technology into their digital transformation strategy, to improve operational capabilities and grow customer relationships.
NEXT How many US manufacturers are still battling with longer-than-usual lead times?
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Manufacturers have been challenged on multiple fronts over the past two years. But for many, supply networks have been the biggest source of frustration.
Aptean surveyed 275 North American manufacturers to benchmark their supply chain capabilities and establish industry goals.
Lead times continue to impact sector recovery
US manufacturing output reached a 2.5 year high in 2021, but supply chain issues are still limiting industry progress.
88% of the manufacturers Aptean surveyed are currently experiencing longer lead times than usual, however the situation is beginning to improve. 7 in 10 organizations are starting to see delivery times returning to normal, with the process manufacturing sector bouncing back much quicker than discrete manufacturing; for 1 in 5 discrete manufacturers, lead times are actually getting worse.
Slower recovery in discrete manufacturing reflects the exceptionally difficult challenges this sector has faced. The global microchip shortage has affected thousands of companies, with demand for microchips currently running 50% higher than supply.
There are other factors affecting recovery rates, too. Company size is having a significant impact on supply chain performance – with SMB manufacturers (organizations generating less than $99m in annual revenue) struggling the most.
NEXT How does company size influence supply chain disruption?
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88% of manufacturers say supplier lead times are currently longer than usual.
Our research found that
worsening for
times are
manufacturers.
Size disparity is creating a vicious cycle, as smaller businesses have less time and budget to devote to finding alternative suppliers. However, supplier choice is pivotal to improving lead times and fulfilling more customer orders on schedule, in order to increase sales and revenue.
Certainly, when Aptean asked manufacturers to benchmark their financial performance, lead times were more likely to have normalized among organizations that have either recovered from the impact of the pandemic or returned to a place of prosperity.
While 89% of prospering manufacturers said their supplier lead times are either back to normal or getting better, 43% of struggling organizations said things are just as bad or getting worse. Clearly, material availability is having a tangible impact on revenue and cash flow.
NEXT Which sub-sectors are experiencing the
times?
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supplier lead
still
1 in 4 SMB
longest lead
89% of prospering manufacturers’ lead times are getting better or back to normal, but 43% of struggling manufacturers say the problem is getting worse. Are you currently experiencing supply chain disruption? Overall $0-99 million$100-499 million$500+ million No - we are back to our usual lead times Yes - but it is getting better Yes - it is as bad or getting worse 12% 12% 71% 63% 25% 84% 8% 8% 23% 77% 17%
For example, in personal care manufacturing, 48% of companies have found upstream problems a major obstacle. This may be a side-effect of how quickly beauty trends change. When suppliers can’t be responsive, manufacturers can’t respond to constantly evolving customer demands.
Personal care supply strains are being made worse by the fact that the end consumer pays close attention to where and how raw ingredients are sourced. The clean beauty market is forecast to exceed $22bn by 2024 and sustainable, organic and cruelty-free ingredients aren’t easily obtainable if manufacturers don’t have alternative suppliers in place.
As the personal care industry demonstrates, manufacturers can’t afford to put all their eggs in one supplier’s basket. Instead, they need a network of vetted alternatives to empower quick action in the event of material delays.
LEAD TIMES: KEY TAKEAWAY
Though the situation is improving, customer lead times are still longer than manufacturers would like, and upstream supply disruption is impacting overall capabilities.
Understanding the causes of disruption and developing strategies to resolve them will prove critical to helping organizations increase supply chain resilience and return to prosperity in 2022.
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Manufacturing Supply Improvements Will
Grow Customer
Relationships
A third of manufacturers rank upstream supply disruption as their biggest challenge this year. And in some sub-sectors, the problem is even more pronounced.
48% of personal care manufacturers find upstream supply chain disruption a major operational barrier.
NEXT How have supply chain delays affected customer relationships?
Customer service is being compromised by supply delays
It’s not just manufacturers who are frustrated by material shortages and
deliveries; supply chain disruption is impacting customer relationships.
Our researched revealed that manufacturers have been forced to make tough decisions when trying to meet customer needs. 70% of manufacturing companies have extended product delivery times on a frequent basis, while 45% have admitted to regularly canceling orders to prioritize high value customers.
How have supply chain delays impacted your customer relationships?
We’ve extend lead times on product
We’ve delayed orders to prioritize our
customers
We’ve been unable to meet our customer orders on time
reduced/canceled their orders because they were dissatisfied with us
cancelled orders to prioritize our
customers
The problem has been particularly acute in sub-sectors where consumer sales spiked over the past 12-24 months. For example, 81% of the personal care manufacturers we surveyed have extended delivery lead times, compared to an industry average of 70%. Meanwhile, 63% of CBD manufacturers have canceled orders to prioritize high value customers – higher than the industry average of 51%.
NEXT How does company size influence customer impact?
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delayed
Never Sometimes OftenRarely
deliveries to customers
highest-value
Customers
We’ve
highest-value
10% 17% 14% 24% 28% 31% 27% 28% 31% 18% 15% 35% 35% 16% 29% 35% 18% 20% 48% 22%
70% of manufacturers frequently extend product delivery times due to supplier delays.
Our research found that manufacturing organizations with a revenue of $100-499 million were most likely to have compromised their customer service in every way.
How have supply chain delays impacted customer relationships: company size analysis
Impact of Supply Chain Challenges On Customer RelationshipsOverall$0-99 million $100-149 million $500+ million
Base: 27516282 31
We’ve extended lead times on products deliveries to customers70%65%79%71%
We’ve delayed orders to prioritize our highest-value customers 53%46%68%55% We’ve been unable to meet our customers orders on time 51%47%65%39%
We’ve canceled orders to prioritize our highest-value customers45%40%62%32%
Customers reduced/canceled their orders because they were dissatisfied with us 45%43%56%32%
Mid-size manufacturers are often in a high growth phase, where customer orders are increasing at pace, but their operational systems can’t scale easily to meet new levels of demand. Cracks in legacy technologies and processes begin to show, and these manufacturers must prioritize infrastructural improvement to stop supply chain shortcomings from damaging customer relationships.
NEXT What are the root causes of supply chain disruption?
CUSTOMER IMPACT: KEY TAKEAWAY
Material availability is impacting order fulfilment and therefore customer satisfaction. Manufacturers need to prioritize supply chain improvement to build stronger, more profitable relationships going into 2022 – particularly among mid-size manufacturers, where rapid growth has pushed current supply chain management capabilities to their limit.
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Chain Reaction: How Manufacturing Supply Improvements Will Grow Customer Relationships
While smaller manufacturers have been worst hit by supply chain delays, mid-size companies have felt the customer relationship impact much harder.
Manufacturers pay the price for cost fluctuations
Clearly, the manufacturing supply chain isn’t functioning at full capacity. But to normalize lead times and protect networks from future volatility, we need to understand the root causes of disruption.
Across the board, material price fluctuations have been manufacturers’ number one challenge in 2021. And this is validated by further industry data.
The Raw Material Price Index stands 18% higher than it did 12 months ago, driven by increasing cotton and rubber prices, and exacerbated by sub-sector cost crises.
For example, international personal care and pharmaceutical manufacturers have seen the price of ethoxydiglycol (used in products like fake tan and eczema treatment) increase from $16.50 to around $138 as a result of global shortages.
Meanwhile, machinery and fabricated metals manufacturers have been impacted by the high price of steel; US steel prices have risen to $400-800 per ton higher than overseas prices, to the point where many manufacturers have found it cheaper to source steel internationally and pay the 25% tariff on foreign imports. And there are further, unique challenges impacting the recovery and prosperity of manufacturing verticals.
NEXT How do supply chain challenges vary by sub-sector?
causes of
chain disruption:
8Whitepaper | Chain Reaction: How Manufacturing Supply Improvements Will Grow Customer Relationships
Top 5
supply
1. Price fluctuations 2. Low inventory levels impacting production 3. Long lead times for components/ingredients 4. Travel/transportation/trade issues 5. Over-reliance on one supplier or lack of verified, credible alternative suppliers
For
What has caused supply chain disruption within your manufacturing business?
of Supply Chain Disruption
But
9
Whitepaper | Chain Reaction: How Manufacturing Supply Improvements Will Grow Customer Relationships
While price is a universal problem, if we look more closely at each sub-sector, manufacturers are being disrupted in different ways.
example, 38% of machinery manufacturers blame low inventory levels for their supply chain problems, while 39% of chemicals manufacturers view long lead times as their core issue. This second stat tallies with wider industry data; the National Association of Chemical Distributors (NACD) reports that 85% of chemical distributors experienced at least one imported item being out-of-stock in July 2021, up from 47% three months earlier. Cause
Machinery Fabr. Metals & Machine Shop ChemicalsCBDPersonal Care Pharma & Nutra Price fluctuations 35%40%32%52%41%53% Low inventory levels 38%20%21%37%33%35% Long lead times for raw components / ingredients 27%56%39%33%33% 24% Travel, transportation or trade issues 28%16% 24% 41%44%18% Lack of verified, credible alternative suppliers 26%36%32%19%30%35% Over-reliance on one or more suppliers 27%16%34%33%30% 24% Difficult to on board new suppliers 26%32% 24% 26%26%41% Cyber attacks 23%36%13%48%22%29% Quality issues (in-house or with suppliers) 23%16%26%37%37%18% Storage and access disruptions, e.g. shut-down, overcapacity or unfit-for-purpose plants / warehouses 28%20%16%30%22%12% Difficulty updating production schedules to reflect inventory availability/lead times 25% 24% 11%19%22% 24% Lack of visibility over lead times 21%20%16%30%26%12% Natural disasters or emergency situations, e.g. fires, floods 18%12%11%44%26% 24%
In contrast, CBD manufacturers are much more concerned with external threats like cyber-attacks and natural disasters – a reflection of events like Hurricane Ida, which took several CBD manufacturing plants out of action. The sector also suffered a major security breach in February 2021, when medicinal cannabis company Cann Group had $3.6 million stolen by a third party.
while the root cause of manufacturers’ supply network struggles is varied, we found one common theme across our research: companies that have invested in supply chain management technologies are better equipped to deal with problems than those in the early stages of automation. NEXT Is digital transformation driving better supply chain performance?
Supply chain automation is driving success
automation by
are currently automated?
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To understand how manufacturers are tackling supply chain challenges, we analyzed industry attitudes towards technology investment – and found a clear relationship between digital transformation and supply chain resilience. Currently, supply chain management is not a priority innovation area, with 68% of manufacturers still relying completely or partly on manual processes to control inventory and coordinate supplier relationships. Smaller manufacturers have even more ground to make up, as 16% admit that their supply chain management is totally manual – with enterprise manufacturers significantly further ahead in advanced automation. Completely manual Mostly manual Partly manual, partly automated Mostly automated Completely automated Creating bill of materials/calculating formula or recipe Tracing product components/ingredients Quoting and estimating Managing production processes and volumes Analyzing and managing profit margin Managing machinery performance and servicing Managing supply chains and suppliers 10% 12% 14% 12% 10% 15% 11% 18% 28% 25% 17% 14% 18% 16% 19% 16% 23% 26% 22% 26% 26% 26% 34% 31% 30% 28% 26% 28% 15% 17% 15% 18% 19% 15% 17% Which areas of your manufacturing operation
Supply chain
manufacturer revenue $0-99 million$100-499 million$500+ million Completely manual 16% 2% 10% Mostly manual 19% 22% 7% Partly manual 31% 26% 20% Mostly automated 18% 34% 37% Completely automated 16% 16% 27% This is completely understandable; SMBs have fewer resources to dedicate to digital transformation and are therefore more likely to be focused on day-to-day demands. However, the benefits of supply chain management software are clear when we compare automation data with how quickly lead times are returning to normal… NEXT Are technology early adopters recovering quicker than digital laggards?
If we segment automation level by current lead times, it’s evident that manufacturers making greater technology investment are closest to supply chain normality.
Although we need to be mindful of sample size – as most manufacturers describe their current status as ‘getting better’, this data should be treated as an indicative trend rather than pinpoint percentages – our research suggests a shift in supply chain resilience as organizations become more automated.
And manufacturers that are leading digital transformation are best-placed to not only meet customer needs, but to go after new business opportunities; confident that material availability won’t hold them back.
How are your current supplier lead times?
Back to normalGetting betterGetting worse
Completely automated 36% 19% 7%
Mostly automated 18% 23% 13%
Partly manual 27% 35% 47%
Mostly manual 9% 8% 27% Completely manual 9% 14% 7%
NEXT How can supply chain innovation support future manufacturing growth?
TACKLING SUPPLY PROBLEMS THROUGH TECHNOLOGY: KEY TAKEAWAY
While diverse internal and external factors can influence the manufacturing supply chain, organizations are better equipped to manage upstream disruption if they have automated some or all of their supply chain management operations. Therefore, supply networks should play a central role in manufacturers 2022 digital transformation strategies.
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Digital innovation never stands still
2022 is set to be another strong year for manufacturing, with 78% of companies predicting higher sales and revenue than 2021. And supply chain innovation will prove key to meeting this target.
The link between digital transformation and supply chain resilience isn’t a narrative Aptean has created; manufacturers are already aware of it. When we asked organizations what operational investments they needed to grow their business, 98% mentioned the supply chain. But what that investment looks like will depend on manufacturers’ current capabilities and future goals.
While many manufacturers will be putting the foundations in place for digitizing supply chain management, those with automation software already in place will be making further improvements to their resilience and agility.
of
For example, 84%
while 88%
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Customer
Relationships
Which aspects of supply chain management are you improving through automation? 275Base Overall 56% 60% 54% 25% 62% 54% 56% 53% 50% 50% Create / improve our supply chain contingency plan Improve traceability Improve production scheduling to make smarter use of inventory Spread orders across a wider number of suppliers Improve forecasting capabilities to better predict demand Build up inventory Use technology to drive supply chain visibility Increase quality checks Increase in manufacturing in-house Add new suppliers to our portfolio Currently doing / implementing Not currently doing but planning to in the next 12 months Not planning to do in the next 12 months In addition to investing in basic functionality, manufacturers are growing more ambitious.
of companies want to improve production scheduling to make smarter use
inventory,
want to enhance their forecasting capabilities to better predict customer demand. NEXT How does company size impact supply chain transformation objectives? 98% of manufacturers think investing in supply chain management technology is important to reach their future business goals. 62% 27% 11% 60% 29% 11% 56% 28% 15% 56% 31% 13% 54% 32% 14% 54% 32% 14% 53% 32% 15% 52% 28% 19% 50% 38% 12% 50% 38% 12%
If we look at manufacturers’ supply chain technology goals by company size, there’s a clear distinction in priorities based on business maturity.
While SMB manufacturers are focused on building up inventory to avoid letting customers down again, mid-sized manufacturers are targeting greater supply chain visibility, in order to make data-driven decisions that meet their customer needs.
And many enterprise manufacturers have moved to the next level of digital transformation; combining greater visibility and contingency planning, so they can model multiple scenarios and put plans in place that mitigate future supply chain disruption and maintain on-time delivery rates.
Solutions Being Implemented / Planned
Overall $0-99 million $100-499 million $500+ million
Base: 275 162 82 31
Create / improve our supply chain contingency plan
Build up inventory
Improve production scheduling to make smarter use of available inventory
Increase quality checks
Improve traceability
Use technology to drive supply chain visibility
Spread orders across a wider number of suppliers
Increase manufacturing in-house
Add new suppliers to our portfolio
Improve forecasting capabilities to better predict demand
NEXT Recommended actions for manufacturing executives
DRIVING SUPPLY CHAIN INNOVATION: KEY TAKEAWAY
Manufacturers see a clear business case for investing in supply chain management technology, but smaller organizations are less advanced in their digital transformation journey. To keep pace with industry standards, companies need to use data insight and process automation to make stronger strategic choices quicker, striving for contingency planning to mitigate the impact of future disruption on customer relationships.
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How Manufacturing Supply Improvements Will
Grow Customer
Relationships
62%57%59%84%
60%61%54%68%
56%56%51%68%
56%55%50%68%
54%53%46%65%
54%46%57% 74%
53%54%44%58%
52%49%50%61%
50%52%43%55%
50%48%48%65%
Recommended supply chain actions for manufacturing executives
› Benchmark your supply chain capabilities against the data in this whitepaper to understand how current compromises are impacting your customer relationships
› Increase your network agility by identifying and vetting alternative suppliers to give you further, reliable options when deliveries don’t go to plan
› Prioritize supply chain management within your digital transformation strategy; a fully-optimized production line can’t run without the right material resources
› Map transformation objectives to your current capabilities: manufacturers reliant on manual operations should focus on basic process automation, whereas organizations in the advanced stages of automation can use real-time data to model ‘what-if’ scenarios and adapt supply chain management strategies
› Invest in supply chain management technology that will help you to grow customer relationships; manufacturing ERP software integrates material resourcing information with production scheduling, to align supply chain activity with the rest of your business and meet customer needs
› Use ERP insights to increase network resilience; for example, by forecasting demand and tracking customer trends to accurately predict future material requirements and model/mitigate the impact of market fluctuation
NEXT Transform your supply chain with Aptean Manufacturing ERP
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Aptean Manufacturing ERP: Driving Supply Chain Innovation
Supply chain performance is critical to manufacturing output, customer satisfaction and profit, but it can’t be improved in isolation. The most successful manufacturers are increasing supply network resilience as part of an integrated digital transformation strategy.
Aptean Manufacturing ERP connects end-to-end operations to enable complete visibility and traceability through the supply chain and production process, for connected decision-making.
Through Aptean Manufacturing ERP software, you can:
› Increase visibility and collaboration with reliable, digital processes
› Replace paperwork and automate tasks to boost productivity and cut costs
› Create more accurate and dependable plans
› Gain visibility into job costs and profits
› Improve on-time delivery rates
› Achieve maximum throughput
› Make smarter operational and strategic decisions
Get Ready for What’s Next, Now®. Contact us at info@aptean.com or visit www.aptean.com.
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Aptean: building specific solutions for your business
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At Aptean, we know our clients’ industries inside and out. And every day, we put this deep knowledge to work by creating hyper-niche ERP software solutions that enhance your operational efficiency—and drive better results for your business.
As by-your-side partners, we provide the critical support you need, every step of the way. That’s why companies like yours rely on us to help them streamline, save and scale.
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We’d love to show you how to get Ready for What’s Next, Now®. Contact
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About Aptean
Aptean is one of the world’s leading providers of purpose-built, industry-specific software that helps manufacturers and distributors effectively run and grow their businesses. With both cloud and on-premise deployment options, Aptean’s products, services and unmatched expertise help businesses of all sizes to be Ready for What’s Next Now®. Aptean is headquartered in Alpharetta, Georgia and has offices in North America, Europe and Asia-Pacific.
To learn more about Aptean and the markets we serve, visit www.aptean.com.
About our research study
Aptean and B2B International surveyed 275 North American discrete and process manufacturers in October 2021. B2B International is a global, full-service market research firm, specializing in researching B2B markets. Helping clients achieve their business goals by making smarter decisions driven by insights.
Copyright @ Aptean 2022. All rights reserved.
us
or visit www.aptean.com
