While the manufacturing economy continues to see steady growth, suppliers continue to grapple with labor shortages, raw material inventories and backlogs, price increases and the challenge of training new employees. According to a recent Institute for Supply Management report, suppliers are struggling at unprecedented levels to meet the increasing demand.
Here are some of the leading factors contributing to supply chain issues for manufacturers.
Inherent vulnerabilities exist in the way manufacturers operate. These vulnerabilities — such as the structure of the global supply chain, inadequate mapping, or a lack of business continuity planning can trigger challenges when disruption occurs.
China has a significant portion of the world’s GDP, and many manufacturers rely on them to provide raw materials and goods at a lower cost. However, dependence is a vulnerability in the face of disruption. According to the Harvard Business Review, most companies only have up to five weeks’ worth of inventory on hand to help them meet demands. This lack of preparedness coupled with strong dependence on distant suppliers presents substantial risks.
If you can’t be sure that your organization is resilient in the face of disruption, chances are you don’t have enough visibility into your supply chain. According to the Business Continuity Institute’s 2021 Supply Chain Resilience Report, 55.6% of organizations are now using technology to help with their supply chain management. This is up more than 40% from their 2019 report, where only a fifth of organizations were using technology to map their supply chains and identify potential for disruption. Without a comprehensive map of your supply chain, it’s difficult to know how you’ll be impacted by disruption or how you’ll respond. It’s nearly impossible to be proactive. Manufacturers and supply chain leaders have accelerated their adoption of technologies and prioritized data and analytics as a means to gain visibility and foresight.
Another challenge for manufacturers is a lack of response planning. The National Association of Manufacturers (NAM) reports that only half of manufacturers (50.8%) have emergency response plans.
For manufacturers who cut costs in procurement, rely on vulnerable suppliers and don’t have an emergency plan, it’s hard to gain control of the high cost of reactionary spending amid disruption. There’s nothing wrong with running “lean” as a manufacturer, but certain strategies are healthier than others.
Disruption is inevitable in the manufacturing industry. Recent forms of disruption have seen the rising cost of raw materials, which is a primary concern for 86.6% of manufacturers, according to the National Association of Manufacturer’s quarterly outlook survey. Other major concerns were supply chain challenges (71.3% of respondents) and logistics costs (60.1%). Creating an action plan will enable you to both recover and fortify your operations against future disruption.
The NAM Manufacturing Outlook Survey from the Second Quarter of 2021 shows increased raw materials costs, labor shortages and supply chain disruption as the top business challenges for manufacturers.
Learn where your suppliers source their supplies and keep careful documentation of your supplier map. As you build out your map, consult with your tier-one suppliers and ask for their help in the process.
Every company along the chain can benefit from greater visibility. Make your manufacturing company a data company.
To prepare yourself for anything, walk through as many possible scenarios as you can and document your potential response for each. That response should outline key players and their responsibilities as well as how you’ll communicate changes when it’s time to deploy a strategy. For example, if a supplier runs out of X product and can’t provide your next shipment when you need it, what will you do? Do you have alternative resources?
Regular discussions with key players in and around your company will ensure you’re always on the same page, working off of current and relevant information. Should disruption occur again, you’ll be able to communicate quickly with your workforce, relevant parties and your customer base.
As you navigate through any disruption, do not forget about your most valuable resource: your employees. Beyond communicating your needs and actions as a company to them, be sure to acknowledge their value and address their needs on an individual level. Consider the challenges that they are facing and how you can be a part of their solution.
To secure your own supply chain, spread your procurement out so you’re not tied to just a few companies, especially for your most vital products and processes. You could have multiple suppliers of the same raw material so that, in a time of disruption, you can lean more on one than another.
Having a solid understanding of the health and performance of your manufacturing business, even as the market fluctuates, will help you grasp your leading indicators. If you base your business decisions solely on lagging indicators, like revenue and purchase amounts, you won’t be able to achieve the flexibility necessary to innovate and grow with the market. Operational analytics can help you map out where you’re going and optimize your processes in order to meet future goals.
It is clear that slow supply chains are impacting every industry. It’s important for manufacturers, in particular, to stay on top of your operations, model various disruption scenarios and plan for continuity. Supply chain technology, as well as analytics, can mean the difference for manufacturers facing today’s and future disruptions.
Digital transformation is key to the manufacturing entity of the future, as well as overcoming today’s challenges.