The world is still in flux from the impact of the pandemic on global supply chains. Manufacturers are increasingly aware of the many threats they now face from a host of different international events and are now seeking solutions to mitigate such supply bottlenecks – but this cannot be done in isolation from other operations.
New strategies in supply chain management affect more than one area of a business, from the design phase through to warehouse logistics, and this must be a key consideration.
Global supply shortages continue to be a part of everyday life. Even if manufacturers cautiously expect something of a recovery by the end of 2023, it is not realistic to suggest there will be an end to interruptions or shortages.
It is important to remember that these challenges are not specific to the extraordinary events of the pandemic: according to McKinsey, disruptions of at least one month occur on average every 3.7 years.
As such, a refreshed supply chain strategy should aim for consistent agility, flexibility, and resiliency, so that urgently needed products or components can be sourced on time, even during crises or demand volatility.
So how do we go about achieving this? To do so, we must address several questions: what role then does product design play in this? Is it enough to return production to home countries? And how can manufacturers maintain the right balance between push and pull strategies in their supply chain management?
Design for Supply Chain
Many supply chain problems start during the design phase, a crucial stage often overlooked when planning for possible disruption.
As a starter for 10, the development team should consider during design the following questions: are all necessary parts available? Can suppliers deliver the components within the agreed deadlines? Are there several suppliers of a critical component (diversification)? Are there cheaper alternatives? And what risks can be expected along the supply chain?
Successful design for supply chain requires manufacturers to invest in collaboration with suppliers, focusing not on ad hoc savings but on long-term efficacy. Instead of looking for the lowest price and signing short-term contracts with suppliers, would it not be more beneficial to prioritise long-term, close relationships within the supply chain that promise a more efficient cost-benefit ratio?
We should not underestimate the impact of continuous communication and exchange between developers, supply chain managers and manufacturing partners.
Collaborative workflows make it possible to identify errors, delays and inefficiencies within the supply chain, eliminate them early, meet the time-to-market and thus remain competitive.
When presented with a challenge, open avenues of communication between all parties enable developers to find alternative components as seamlessly as possible. In the end, the logic is simple: the earlier any risks in the supply chain are apparent, the more effectively the development team can manage price increases, shortages and, in the worst case, failures.
Reshoring, Nearshoring or Friendshoring
A resilient supply chain extends beyond the design phase. Companies should also weigh up the pros and cons of manufacturing location alternatives when it comes to mitigating against the impacts of geopolitical tensions and rising transport and logistical costs.
There is increasingly a shift towards ‘in-region for region’ models, alongside other trends including:
- Reshoring: Manufacturers are moving away from emerging markets and relying on local manufacturing. This trend was already evident in the Nineties but in view of the ongoing supply chain crisis is once again gaining relevance. Moreover, merging design and production in the country of origin promises high reliability.
- Nearshoring: Manufacturers are relocating production sites to countries geographically closer to the country of origin, but still offer lower labour and production costs. Eastern European countries, such as Romania, have already established themselves as reliable and effective locations in recent years, while in the future, their European neighbours could become more attractive.
- Friendshoring: Companies are considering not only the local proximity of production sites, but also their political stability and linguistic and cultural proximity. Anyone who shares similar values, so the logic goes, is a reliable partner in economic terms. This approach ensures manufacturers retain their access to global markets while reducing the risk of geopolitical disruption.
All three of these approaches aim to bring outsourced production closer to the company or to a "safe" location.
Clearly each company will benefit from different models: for example, while a shorter supply chain offers more control and resilience, for chains tied to specific raw materials, relocation is often not feasible. It is also important to bear in mind that such relocation processes often involve immense expense, especially since it is only in recent decades that companies have invested large sums in offshore manufacturing locations.
Increasingly, companies consider the number of suppliers they engage as far more important than their location, with more and more firms seeking to diversify their procurement. The hope is that trading relationships with several suppliers in different countries will make it possible to minimise future production disruptions.
From Pull to Push
A strategic rethink is also emerging in how companies manage their inventory. For years, manufacturers exclusively organised their supply chains according to the just-in-time approach (pull-system). Production and warehousing were orientated towards customer demand, which is why many companies did not need large storage areas, but since the pandemic, companies have increasingly implemented the just-in-case approach (push-system). In this model, safety stocks increase the probability of mitigating and even avoiding shortages in supply chains when demand fluctuates. According to a study by Unleashed, UK companies have seen the value of stock on hand jump 99.7% as they expand their warehousing.
However, this pull-push dynamic is associated with high costs for companies in the long term. On the one hand, manufacturers want to ensure the availability of relevant materials, while on the other, they need to look carefully at the expenses required for storing components over a long time. A balance between a cost-saving pull-strategy and a bold push approach preserves working capital while minimising the risk of hoarding excess stock in its warehouses.
Partner for the Strategic Shift
Regardless of which new strategies manufacturers ultimately choose, managing supply chains will remain challenging. Expertise is key to developing a resilient supply chain. By relying on an expert with engineering capabilities during the product development phase, companies can identify alternatives for components and suppliers early on, and as for the balancing act between pull and push strategy, an experienced partner can help provide a mid-point solution.
It is always worth working together with partners and suppliers to build a sustainable supply chain for the long term.
Of course, rethinking requires resources, time and effort, but with these new strategic shifts, companies will now be better prepared to manage supply chains for any future challenges.
Author details: Frank Zycinski, Market Sector VP, Plexus
