The year 2020 was a challenging year for manufacturing supply chains. To reduce the spread of COVID-19, there were fluctuating factory closures, by country or region, which played havoc with planning. Understandably, demand for medical devices diverted supply of material from other uses. Shipping was delayed and rates rose drastically. Questions arose about the impact on logistics from distributing vaccines worldwide, especially cold transportation. Just when we thought we had seen it all, a major fire at a factory in Japan significantly reduced the supply of sub-components used by a variety of electronic component manufacturers.
In some ways these just build on existing trends. Rising costs in offshore factories, the “trade war” and subsequent tariff implementation have led some companies to look closer at what portion of their supply chain is reliant on specific countries (often China). Some were already taking the next step by moving operations completely or dual-sourcing key parts of their supply chain elsewhere. Even some Chinese manufacturers have started building factories in Vietnam.
It is, however, not so easy to move certain parts of the supply chain. With infrastructure, sub-tier supply chains and experienced personnel in China, relocating while trying to maintain technical expertise and high quality may only be a good choice for certain parts and companies. In addition, while building assemblies in another country may be an option, many of the components may still come from China.
The good news is technology provides manufacturers the ability to understand their supply chain, estimate risk and evaluate options better than ever before. It also better enables manufacturing companies to manage more complex supply chains. ERP systems and other commercial tools to allow companies to manage and approve alternate vendors on commercial-off-the-shelf parts, while also conducting what-if analyses related to inventory and the supply chain. Portals provide real-time visibility into customer demand and suppliers’ material availability. Component lifecycle analysis tools, quoting software and online databases can help identify alternate components and manufacturers while monitoring costs. Inventory management software helps supply chain teams better plan and monitor inventory levels. Data analysis and artificial intelligence can help streamline some of the activities and reviews in the demand through build process.
What are some steps to consider for your supply chain in 2021 and beyond?
• Look for opportunities to multiple source commercial-off-the-shelf components or materials to reduce risk and improve your ability to find parts when supply tightens.
• Consider dual sourcing custom parts where it makes sense, such as a mix of low cost, nearshore and onshore suppliers (or by partnering with suppliers who offer all these options). The geographic diversity may improve your continuity of supply by having production closer to you and your customers, while spreading out geographic or logistics risks. Also consider the costs of doing so, including potentially higher purchase prices as well as costs related to tooling, qualifying, and managing additional suppliers.
• Explore combinations of onshore and offshore supply chains for different levels of your product – perhaps it makes sense for fabricated parts to be built in Asia but final assembly to be in North America.
• Take into account other factors related to geography. Perhaps onshore makes sense for small volume, responsiveness during New Product Introduction, and for medical or military products. Improvements in manufacturing technologies, such as faster CNC machines, robots and pick-and-place machines may improve cost competitiveness locally. In other situations, such as when volumes increase, the cost savings nearshore or onshore may warrant much of the production being moved to sources there.
• Consider the Total Cost of Ownership (TCO) – this includes the price you pay the supplier, but also shipping costs, costs of more inventory (whether on a boat or in your warehouse), employee time to manage multiple suppliers, etc.
• Put in place effective disaster recovery plans and ask that your key suppliers do the same. A supplier that has proactively prepared in advance and is ready to react in the case of a disaster at its site is more likely to resume supply to you faster. At a minimum, teams should be identified ahead of time and IT systems should frequently back up all key documents such as procedures, customer specifications, tool designs, etc. in case of local system failure.
This is not the first time we have seen shocks to the supply chain: a 2011 earthquake in Japan impacted semiconductor supply; flooding in Thailand also in 2011 caused disruptions in hard drive supply; strikes at US West Coast ports have caused delays in several years. Will business leaders focus as much on these supply chain challenges in a year or two? Who will want to pay to hold more inventory? Who will want to put the time, effort, and cost into finding and qualifying additional sources? Who will agree to pay for second sets of tooling? Where will the money come from to buy parts that are manufactured nearby, but more expensively? Only time will tell.
About East West Manufacturing
East West is a global manufacturing services company based in Atlanta, Georgia focused on the realization of products, from design through distribution. As specialists in onshore, nearshore and offshore manufacturing, we offer a seamless path to scale and an exceptional speed-to-market strategy while driving down costs and adhering to the highest quality standards. We are one integrated family, working together to support our customers throughout the entire product lifecycle. Our vision is to make the world a better place – cleaner, safer, healthier and smarter.