The game has changed.
Traditional supply chain priorities – maximizing efficiency and minimizing cost – are quickly becoming obsolete. Meanwhile, the ongoing impacts of the COVID-19 pandemic are causing manufacturers to invest time, effort and resources in minimizing multi-tier disruption and maximizing collaboration & traceability.
“The playbook has been rewritten,” said Trevor Stansbury, founder and CEO of Supply Dynamics, an AEM member company and provider of real-time solutions for helping manufacturers and other organizations find the hidden value in their supply chains.
“I think, any CEO worth his or her salt understands it’s not enough to focus on cost and efficiency. Companies really need to start focusing on how to collaborate with sub-tier suppliers on both part and raw material traceability. That’s the new game plan.”
INFORMATION IS POWER
Historically, leading supply chain management professionals have recognized business volume – or, more specifically, the ability to consolidate more business with fewer suppliers – as the only viable way to drive competition and achieve lower prices and better service levels.
That’s no longer enough, as many companies have discovered. Instead, organizations today – those of all types, sizes and industries served – are slowly, but surely starting to realize it’s far more important to be able to share accurate, timely and relevant information about part and assembly demand across a supply chain ecosystem.
“Accurate information about parts and the materials that go into them is a bigger predictor of preferential treatment from sub-tier suppliers and success in the marketplace than business volume and a key consideration in enhancing supply chain performance,” explained Stansbury.
“Those two changes (a company’s ability to collaborate with its sub-tier suppliers and the sharing of information across company boundaries) are vital considerations when it comes to intelligent asset management. It’s not enough to focus on cost and efficiency alone,” he continued.
“We have to talk about how we proactively avoid disruptions in the supply chain,” he added.
SUPPLY CHAIN VISIBILITY AS A COMPETITIVE ADVANTAGE
According to Stansbury, somewhere between 50-80% of the parts found in any Original Equipment Manufacturer’s product are not actually made by the company itself. It’s a very high number, but one that’s not altogether surprising. Not long ago, vertical integration was commonplace in the industry. Today, however, manufacturers purchase parts and assemblies, as well as raw materials, from sources across the United States and around the world.
“In today’s digital economy, a company’s ability to understand who makes what parts, in what quantities, and what materials go into them, and where they are being sourced, has become a key competitive differentiator,” said Stansbury. “Being able to choreograph or quarterback interactions in those complex supply chains becomes much, much more important. And the people that do it well, are the people who are going to win in the end.”
Another consideration manufacturers can’t afford to overlook is the ever-increasing number of mergers and acquisitions within the industry. So many of today’s most prominent manufacturers have grown and evolved through acquisition – and it almost goes without saying – this has a lasting and transformative impact from an operational standpoint.
For example, each newly acquired outfit – no matter its role in a newly combined entity – often operates with different enterprise resource planning (ERP), materials requirements planning (MRP) and product lifecycle management (PLM) systems. And in a lot of cases, the systems don’t talk to one another, even today. So, any effort to improve supply chain management begins with securing reliable, accurate, and structured information. While this is hardly front-page news, it turns out to be a pervasive stumbling block for many companies. Only by getting your proverbial “data house in order,” as Stansbury calls it, can a company reasonably expect to leverage advancements in technology intended to improve performance.
“Data governance becomes the foundation,” said Stansbury. “That’s where it starts. You have to ask yourself, ‘How do we get good, structured data that we can share across multiple stakeholders in our supply chain?’ Once you have that, then you can really start to apply analytics, machine learning, blockchain. There’s just so much you can do.”
LEVERAGING TECHNOLOGY TO FACILITATE IMPROVEMENTS
No real progress can be made on cost savings or efficiency until a manufacturer possesses a sound understanding of the component parts and raw materials that go into its products and where they originate.
“Technology can help you understand what you have to do to move the needle on performance,” explained Stansbury. “The challenge today isn’t that companies don’t have enough information. In fact, most companies are drowning in it. But if no one speaks the same language or can agree on what to call a particular part or the material that goes into it, for example, then you’re not really going to get anywhere. And so, it all begins on a foundation of well-structured data that conforms to a common naming convention and data taxonomy.”
Once upon a time, not all that long ago, manufacturers were inclined to view their ERP systems as holistic solutions capable of addressing all organizational needs - from running financials to scheduling the shop floor and performing all kinds of specialized tasks that they were not originally designed for. According to Stansbury, these platforms have proven to be “woefully inadequate” when it comes to addressing the full range of modern business requirements.
“Don’t look to your ERP system to solve all your problems, because there’s no such thing as a holistic solution when it comes to addressing the complexity of today’s multi-tier supply chains,” he said. “The good news is that the solution you’re looking for may be significantly less expensive than you think, and it probably won’t take as much time to deploy as you fear. You just need to be willing to knit together the right combination of best-in-class technologies to complement whatever existing systems you already have in place.”
Provided that a manufacturer gets its “data house in order, and finds the right combination of technologies to complement existing ERP systems,” said Stansbury, a manufacturer can reasonably expect to:
- Lower costs for parts and assemblies going into their products by 7-12% - typically in 18 - 24 months
- Standardize parts and materials by sizes and specifications
- Comply with sustainability requirements
- Reduce lead times and cycle times by as much as 40 percent
HOW TO WIN
It’s impossible to control something if it can’t be seen. For manufacturers looking to succeed in the new digital economy of today, they must be able to achieve transparency across all tiers of supply. Quite simply stated, it’s essential. And, as end-users become more aware of recent trends driving supply chain visibility and transparency, manufacturers will need to do more than advocate for sourcing responsibly. They’ll have to do it, and they’ll have to actually prove they’re doing it.
“Companies don’t compete with companies anymore,” said Stansbury. “Supply chains compete with supply chains. And, when all is said and done, whoever has the most connected and well-choreographed supply chain wins.”
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