Post-Pandemic Supply Chain Issues
Supply chain issues have been a hot topic since the pandemic started, making their way into headlines across the world. IBEX 365, in partnership with the National Marine Manufacturers Association (NMMA), held a webinar addressing supply chain concerns for manufacturers on April 29, 2021. IBEX 365 is North America’s largest technical trade event for marine industry professionals. NMMA is the leading trade organization for the North American recreational boating industry. Andrea Sordi, Clinical Professor Supply Chain Management, University of Tennessee, spoke with Scott Berry, Director of Engineering Standards, NMMA, to answer questions about planning for disruptive events such as costly shipping, innovation, and consolidation.
Global and environmental factors are shaking the principles on which the supply chain has built itself. The pandemic, trade wars, tariffs, etc. have all impacted the global supply chain over the last 18 months. With these tumultuous landscapes changing daily, many manufacturers are struggling with no end in sight. Sordi explained that extreme solutions do not solve these problems. He said, "You need to find balance. Extreme doesn't work. Some materials can be sourced nearshore [vs. offshore], so the question becomes how do you control that balance?" He encouraged manufacturers to think critically about their supply chains and pivot quickly when issues, like costly shipping, arise.
How can manufacturers plan for disruptive events?
Although no event can be fully anticipated, some preparations can be made in advance. Sordi explained that too much time is spent perfecting data and forecasts when the truth is accurate forecasts are entirely subjective. Each company has to decide for what "accurate" means for them. However, Sordi elaborated that what matters is the ability to turn those forecasts into directional data and understand how different scenarios might play out. Accuracy is less important than ability to be flexible. This can be difficulty to do since the supply chain has built itself around the bottom line and growth, which downplays risk management; all industries need to move to a supply chain that is lean and has groundwork built on flexibility instead.
Another way companies can prepare for disruptive events is to ask the question, "How can the company shape demand in the future?" Sordi posed this question so companies look beyond current demand and determine how they can influence it. Looking for new customers and tracking new customer interests are ways the companies can shape demand; the idea is to get ahead of the curve and lead demand in the business's favor. Investing in infrastructure, personnel, and automation can also help anticipate or lessen the effect of disruptive events. For example, if companies take the time to understand where bottlenecks occur in their supply chains, they can mitigate those effects now instead of waiting until the bottleneck causes issues.
Innovation and the Supply Chain
Manufacturers are constantly looking for ways to innovate their products, services, and processes, but there are many hurdles to innovation, including the supply chain. It is unlikely innovation will be found within the supply chain; businesses may need to forge relationships with more than one supplier to create the desired result. Use long-term tactics and strategies with suppliers so a stable, symbiotic relationship is made. When looking for suppliers, small and medium enterprises may be worthwhile investments. According to Sordi, small and medium businesses are more diverse and 20 to 30 percent more creative than big businesses.
Many companies start with a tool and then build business around that tool. However, that is not a sustainable business model. It is much more effective to have a goal or an answer to the question "why are you making this tool/product/service/etc.?" and work backward from there to create a business. Understand why this particular product needs innovating. Even working from this model, innovation can still fail if the values and goals are not aligned internally. If the team does not understand why this innovation needs to be made, not only will confusion run rampant, but trust between leadership and employees could break down.
Consolidation in the Supply Chain
When questioned about consolidation within the supply chain, Sordi did not believe it was a solution. "Consolidation means putting too many eggs in the same basket," he said. It is not a solution the the issues that exist right now. He explains there was a big push for consolidation several years ago because it made managing more efficient. Keeping the supply chain diverse does not only spark innovation, as mentioned above, but can also create competitiveness within the industry. Overall, diversifying supply chins is a much safer solution than consolidation.
Quick Tips to Improve Supply Chains
- Lock in prices (components, shipping, etc.) as far in advance as possible to avoid inflated prices.
- To find the best ports to ship to, analyze the company's inland network to see where the resources are the most bountiful (i.e., alternative routes if needed, enough drivers and containers, strong infrastructure).
- If there are not enough resources to serve all customers equally, prioritize certain demographics or types of customers. Focus time, attention, and resources on the segments that will bring the most financial stability.
- Build incentives into supplier agreements such as penalties if they do not deliver on time or cannot hold their end of the contract.
- Give suppliers visibility of the customer base and focus on long-term partnership. The stability may be enticing for them.
- Remember, there is always a lag between normalcy and prices going down. The return to normal is estimated to take another three to six months in the best-case scenario.
There are, unfortunately, no instantaneous fixes to the supply chain issues present today. The information here is meant to help you think critically about your own supply chain in hopes of preventing or mitigating future issues. Time and the return to normal will eventually bring inflated prices down and allow for more movement within the manufacturing industry. If you would like more information on Sordi's presentation, contact NATM Tracks Editor Elizabeth Moore at Elizabeth.Moore@natm.com
Update courtesy of the National Association of Manufacturers.
New Supply Chain Plan Released This week the White House released a report on “Building Resilient Supply Chains” and outlined measures our government will undertake to address the supply-chain challenges that continue to plague manufacturers. The report includes policy recommendations and highlights work that is underway to address supply chain vulnerabilities, including: steps to strengthen U.S. manufacturing capacity for critical goods, to recruit and train workers to make critical products here at home, to invest in research and development that will reduce supply chain vulnerabilities, and to work with America’s allies and partners to strengthen collective supply chain resilience.
You can read NAMs response here.