Supply chains are almost always under some sort of new stress in modern times, whether it was the Japanese tsunami and Thailand floods back in 2011, tariffs and material shortages in 2018, or the ongoing COVID-19 pandemic. We’ve learned a lot, especially during the global pandemic, but there’s little time to sit back and reflect. New issues are always emerging, such as new COVID lockdowns in Asia, the recent Colonial Pipeline shutdown in the US and global shortages in semiconductors, shipping containers and various raw materials. Geopolitical, environmental and human factors are dynamic and ever changing, making the strain on the supply chain the only constant that we can be sure of.
Taking a Fresh Look
As unpredictable events continue to unfold on an increasingly global scale, there’s an urgency to examine the old way of working – linear supply chain planning and forecasting, a sole focus on cost, just in time (JIT) inventory models and siloed business practices – and come up with better ways to meet sourcing challenges. Based on learning experiences from recent events, there are six aspects to consider that can help revitalize supply chains:
- Cultivating closer relationships. Organizations across the supply chain have typically worked in their own silos. OEMs that cultivate close collaboration with partners, suppliers and customers facilitate faster decision-making that takes into account multiple factors. During the height of the pandemic, Sanmina had daily calls with suppliers to reserve capacity for components, so that parts could be shipped earlier to meet production requirements. Our suppliers understood our needs and the importance of delivering parts so that we could support customer requirements, in spite of demand fluctuations.
- Creating flexible product designs for cost and supply efficiencies. OEMs need to look at a complete picture to design products for all aspects of manufacturing, test and procurement. Supply chain constraints must be accounted for in the design of products. This requires input from suppliers and contract manufacturers on the availability of materials, costs and any regional factors that could impact operations. Less than ten percent of a product price can be changed down the road, so evaluating cost effective options during the design phase makes it easier to consider alternative components or materials and to qualify parts.
- Prioritizing total cost of ownership vs. product price. Instead of focusing on product price alone, it’s important to understand the entire product lifecycle, including where it starts, where it finishes and how it differs between customers, to accurately understand volume expectations. Along with price, consider component lead times, manufacturing cycle times, how flexible a supplier is to deliver the parts within the lead time, lot size and transit time.
- Reducing risk with multi-regional manufacturing. Moving or setting up operations in a new region comes at significant expense, but relying on a single location increases risk. OEMs must integrate mid and long term priorities into their business models to develop the right multi-regional approach. Close proximity to suppliers and EMS providers gives OEMs more flexibility and control during any crisis that may arise. However, certain product components that can only be derived from Asia require a multi-sourcing strategy in other regions.
- Setting up strategic stores of materials. Everyone wants to have stock immediately and as cheap as possible but there are tradeoffs when unforeseen events occur. Because forecasts can quickly change from bearish one day to bullish the next, OEMs must consider sourcing for the long term, contrary to current JIT manufacturing models. One scenario is to set up a regional operation with strategic stores that are close to the customer base, combined with the appropriate multi-sourcing of parts that spreads business across multiple approved vendors.
- Accelerating communications with digital platforms. In situations like the pandemic where physical meetings are impossible at times, leveraging digital platforms, unified communications and the cloud for improved collaboration has been crucial. Virtual sessions with suppliers and customers around the world have accelerated decision making and enabled business to move forward with more immediacy, regardless of region or time zone.
Quality of Service in Unpredictable Times
During unexpected events, OEMs that take into account all inputs from the supply chain, cultivate close relationships and have access to suppliers that match their requirements are the ones that will successfully deliver products to customers in time. Intimately understanding customer needs, supplier restraints and building a comprehensive plan that provides alternative approaches during trying times ensures business continuity. It’s no longer just about the technology or innovation of a product that provides a competitive advantage but also the speed and quality of service to the customer.