Recent crisis such as the pandemic, extreme weather events and material shortages are incenting original equipment manufacturers (OEMs) to take a fresh look at their sourcing strategies. Their main objective is to try and balance short-term cost savings with reduced risk over the long term. While leveraging low cost manufacturing in distant regions was embraced more than a decade ago, some organizations are considering what could be gained by bringing manufacturing closer to home. Regardless of the path they choose, OEMs must consider several aspects of their operations before making any big changes to their strategy.
Reducing Inventory Risk and Ensuring Total Cost of Ownership
Because forecasts during a crisis can lack visibility, OEMs should consider sourcing for the long term versus just-in-time inventory models. Early on in the pandemic, many organizations around the world were rushing to obtain the same material at the same time due to lack of inventory. For some OEMs, reducing risk could mean holding a higher amount of stock on premise or moving operations closer to a home base. For others, paying a reasonable insurance premium that reduces risk over time could be the right approach.
When it comes to product price, elements that must be factored into total cost include component lead times, manufacturing cycle times, how flexible a supplier is in delivering parts within a lead time, lot size and transit time. Another important aspect is the price of working with suppliers in different regions. Long distance relationships involve language, time zone and cultural barriers, as well as travel. While it’s not impossible to deal with these factors, switching to local alternatives can provide more control during a crisis.
Forging Strong Supply Chain Relationships
It might be stating the obvious, but OEMs that work very closely with partners, suppliers and customers are better equipped to navigate unforeseen events. During emergencies, top EMS providers can tap into strong supplier relationships to obtain materials more quickly, while continuing to meet production requirements. Some EMS providers also work closely with customers on product design, so they can focus on innovation. This deeper level of involvement requires that EMS providers be transparent, sharing all documentation regarding product designs, product changes and manufacturing processes.
Increasing Speed and Efficiency via Digital Technology
EMS providers that leverage digital platforms such as a cloud-based manufacturing execution system (MES) gain access to real time data on supply chain activities. In a few clicks, stakeholders can view complete supply chain information, all the way down to raw materials. Having access to detailed production data such as the particular tool used to build a product, test data or component traceability records, enables more informed communications with customers. For global programmes, having access to one IT and quality management system connects different regional factories, providing a bird’s eye view into inventory and production. If one region must shut down, production can continue in another region.
Vital business practices such as factory tours and supplier selections can now be held in the virtual arena, with live presentations and negotiations to efficiently conduct business when travel isn’t possible. Going virtual also allows a presenter to reach a broader audience of decision makers that may not have been able to make a physical trip to the site in the first place. While some face-to-face meetings will always be important, reducing the frequency of in-person visits not only saves time and money but also positively impacts the environment.
Bringing it all Together
As major events increasingly cause ripple effects across global supply chains, OEMs are examining how operations can work differently to most effectively meet the sourcing challenges of the future. While the public sector can be more reluctant to change, the private sector is eager to challenge the status quo and learn from recent mistakes, so as to not repeat them. This doesn’t mean that all of today’s strategies are irrelevant, but examining them in advance of another global crisis is paramount. Regardless of the manufacturing location they choose, OEMs must continuously optimise supplier relationships, resources and technology to support immediate and long term requirements, while finding new ways to ensure flexibility and control during times of crisis.