How Manufacturers Overcome Supply Chain Challenges

By Dan Burgos

Recent years have been very challenging for manufacturers, especially regarding supply chain management. Supply chain disruptions, inflation, and labor shortage have highlighted vulnerabilities in manufacturers’ supply chains.

As a result, manufacturers see longer lead times, struggling suppliers, and higher costs. These challenges are leading to lower profitability and lower customer satisfaction for manufacturers.

Did you know that:

• More than 6 out of 10 global organizations expect that geopolitical instability may have a detrimental impact on their supply chains in the next three years.

• 71% of global companies highlight raw material costs as their number one supply chain threat for 2023.

• More than 7 out of 10 companies that announced a shift of their manufacturing locations between 2018-2023 moved operations into Asia.

If you are a manufacturer still feeling the effects of these challenges or think you may be at risk of additional supply chain disruptions, read on for some ways to overcome these challenges:

Let’s start with some supply chain evaluation concepts:

1. Supplier Evaluation – The idea behind this concept is that you want to be proactive about understanding your suppliers’ performance. Once you understand that, you will reward your high-performing suppliers and work with your poor-performing suppliers to make improvements. Some of the categories we recommend you track are Quality, which refers to compliance with the product’s specification. Delivery refers to goods delivered on time per the date promised by the supplier. Reliability refers to the suppliers delivering orders in full and with all required paperwork.

2. Risk Assessment – This should be a mainstay for every manufacturer. The purpose of this tool is to help you be more proactive in identifying where sources of risk exist. In response to these, your team should implement countermeasures to mitigate the risk. When implementing this tool, you’ll want to develop risk evaluation criteria for your suppliers (i.e. financial instability, performance, sole source, capacity constraints, etc.). Some of these you’ll have to research, and others will have to be through collaboration with your team and gathering any intelligence they obtain through their interactions with their suppliers.

3. Value Stream Mapping – This tool is a diagram that shows the entire supply chain flow from customer order to product delivery. The power of having a team put this diagram together and have a 30,000 view is immense. When completing this exercise, you are looking for gaps that prevent the perfect transaction (right quality, right product, right place, right time, right quality, right source, etc.) from happening. You’ll want to identify the lowest percentages of these and implement countermeasures to improve them.

The following concepts fall under supply chain planning:

1. Plan for Every Part – This tool is a spreadsheet or database in which all critical part information is stored and kept updated. How often have you been caught off guard because lead times, prices, and packaging methods have changed? This leads to order delays, lower margins, and product roll-out delays. We recommend you assign an owner to this database and that all changes are tracked and entered by the PFEP owner.

2. Demand Planning – This is a concept in which you use the 80/20 rule to identify your most critical customers and then the highest volume parts for those customers. Once those parts are identified, we recommend you closely track demand behavior (monthly orders, avg. order size, std. deviation, etc.). This will give you an understanding of the demand variability. Once you know that you can develop replenishment strategies, you can present them to your customers (JIT, Kanban, blanket P.O.s, etc.). This will help you create more predictability and, therefore, more stability in your supply chain.

The following concepts fall under supply chain strategies to minimize the effects of supply chain challenges:

1. Supplier Relationships – This is a simple concept but extremely powerful. Identify and invest in the appro - priate relationships. We recommend you separate your long-term supplier partnerships from your short-term vendors. Some of the criteria we recommend you use to separate them are performance, critical to your business’s success, alignment in values, growth potential, and mitigation of a significant risk to the business.

2. Inventory Control – Within inventory control, we recommend you focus on the inventory replenishment cycle. Having a small safety stock buffer is no longer enough to protect you from stockouts. We recommend you consider (for both your business and your suppliers) special events (such as weather-related, conflicts, natural disasters, etc.), quality (supplier performance or internal yields), process variation (supplier delivery or equipment failures), demand variation (internal usage or customer demand), and cycle time (receiving and running frequency).

These are concepts that can help you avoid further impact on your business by being proactive. I wanted to offer other strategies that you may want to consider:

• Sales, Inventory, and Operations Planning (SIOP)

• Improve first-pass yield (Internal quality defect reduction)

• Reduce lead times (Excess & obsolete)

• Improve inventory accuracy (Physical inventory & cycle counts)

• Implement Visual Management (Negative inventory, inventory accuracy, shipping accuracy, supplier performance) - PDCA

• Protect your core offer and mitigate risk by removing critical time spent managing low-demand items.

• Mitigate transportation challenges (port delays, driver shortages, warehouse understaffing, etc.) by building redundancy (alternate routes)

• Implement warehouse automation in response to workforce shortages

• Boost collaboration by initiating high-level information-sharing between all parties with the help of easy-to-use technologies

• In conclusion, I’ll leave you with a summary of our recommendations for manufacturers:

• Identify areas of risk

• Implement risk mitigation coun termeasures

• Evaluate your most critical value streams

• Identify where the perfect execution breakdowns happen

• Implement improvements

• Practice supplier evaluations

• Have a plan for every part

• Keep parts information updated

• Develop & leverage strategic supplier relationships

• Ensure inventory accuracy

• Improve internal coordination between sales, operations, and finance

• Reduce internal quality defects

• Reduce lead times and increase inventory turns

• Use the 80/20 rule to take care of critical customers

Going forward, manufacturers should have some of these processes implemented to minimize the effect of future supply chain disruptions.

Dan Burgos is the Founder, President & CEO of Alphanova Consulting. Alphanova Consulting is a management consulting firm that helps manufacturers achieve and sustain operational cost reductions of 20%+, improve on-time delivery to 99%+, and reduce defects to improve product quality to 99%+. These changes help their clients grow company profit margins by up to 25%.

Dan and his team have over 15 years of experience helping manufacturers in various industries, including aerospace, injection molding, construction products, chemicals, fiberglass, electronics, consumer goods, oil & gas, and medical devices. Dan’s approach is to partner with manufacturing business leaders to uncover and eliminate business performance problems while coaching leaders to create a high-performing culture. To learn more about Dan Burgos & Alphanova Consulting, you can reach them at: www.alphanovaconsulting.com