Does Your Supply Chain Need Surgery?
By Hannah Kain, ALOM
The pandemic hit supply chains hard. Consumers suddenly saw shortages on the shelves, and even half a year after the Bay Area shut down, we are seeing shortages and less selection. Brands simply had to simplify, and one of the ways to do so is to cut less popular offerings in favor of focusing on the best-sellers. Yet, much as consumers all of a sudden took an interest in supply chain, manufacturers were hit even harder because for most, their components and equipment are being manufactured half a world away.
The pandemic coincided with an increasing nationalism. The free trade boom that we have experienced over the last decades, is coming to a halt, and trade barriers are coming up. Consequently, it is getting more difficult to import and export. We are seeing more scrutiny of paperwork at border crossings. Did you remember to include shipping cost in the declared value, for instance? In addition, we are seeing export restrictions with more prohibited parties that you are not allowed to do business with and more concern about products that you are not allowed to export. You cannot send PPE out of the U.S., for example.
The pandemic also caused a freight crisis with increased prices, delays and uncertainty. This impacts manufacturers severely, hitting inbound raw materials, components and equipment. On certain freight routes, the cost went up fivefold and the capacity dropped by 76%. While we are no longer seeing such drastic price increases, the combination of increased freight, increased customs fees and duties, tariffs, and focus on tracking and expediting shipments is weighing on manufacturers. We are dealing with both increased costs and with the risk that product does not show in time. Our production floor may come to a screeching halt if even just one component is missing.
Surgery may be needed. Manufacturers are rethinking the supply chain and, frankly, this “elective surgery” will lead to more healthy supply chains. Top management was complicit as supply chains inadvertently were designed for optimum complexity and risk while the organization was sent in search of saving the last penny in unit cost of a component. The risk and the increased supply chain cost were not factored in at all. Consequently, we now have a generation of buyers who were never asked to look at total landed cost or to think about risk. They feel that they are only rewarded if doing “cheap” procurement
All of a sudden, the buzzwords to improve supply chains are becoming commonplace, but what to do is rarely explained. Here are a couple of areas to think about, and some simple actions you can take.
Agility – the ability to react fast to changes. Start with better and faster visibility. Get your reports real-time or at least faster than you used to. It is good to get your monthly financials 2-3 days earlier, but mainly focus on anything that can predict the future. Design for fast decision-making. Become a preferred customer with your suppliers such that they will change production schedules to meet your needs. It will be a major competitive advantage.
Resiliency – the ability to produce and ship in spite of adverse events. Favor local suppliers who can support you. Do contingency planning. Right now, planning for a disaster in a disaster is a good idea. For instance, does your recovery plan need to be updated in light of the pandemic. You can plan for 95% of all contingencies. For the rest, you need strong and dedicated staff.
Risk management – the ability to anticipate risks, void, mitigate or recover from risks. As 2020 has shown us, planning for risk is not easy. Yet, once you plan for most risks, you also built into your organization’s DNA learning about risk thinking as well as ability to recover and automatic risk mitigation. This is a tremendous advantage.
Manufacturers should reimagine their inbound and outbound supply chains. Yet, surgery should rarely be performed in the middle of a battle. If you have heavy holiday production volumes, now is the time to focus on mitigation, leaving a complete redesign for later. However, do not forget about the surgery – it just may be the competitive advantage that makes a difference long-term.
About the Author:
Hannah Kain is President and CEO of ALOM, a global supply chain company she founded in 1997 headquartered in Fremont. ALOM implements quality and technology-driven global supply chain management programs for many of the world’s leading brands. Hannah is an Advisory Board Member for AMBayArea. She was born in Denmark, taught at Copenhagen Business School, and holds three university degrees. She is a Board member of WBENC and the National Association of Manufacturers and serves on the Advisory Council of The Michelle R. Clayman Institute for Gender Research at Stanford University. In 2012 she was inducted into the Silicon Valley Capitol Club wall of fame.