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09 Jul, 2024 / BY Neil Sharp

Controlling risk in your manufacturing supply chain. What are your options?

Controlling risk in your manufacturing supply chain. What are your options?
8:30

A recent survey of the UK manufacturing landscape by Make UK, concluded that nearly every manufacturer has been materially affected by years of sustained global supply chain chaos - and most expect it to continue. What are you doing to mitigate your supply chain threats? What’s your strategy for risk control?

Supply chain study shows disruption is universal and continuing

Make UK’s study of supply chain challenges last year concluded:

  • 98% of manufacturers suffered some kind of supply chain disruption in 2023
  • 80% expected disruption to continue throughout 2024 and beyond
  • The majority were either planning or implementing suitable mitigating strategies

Key drivers for supply chain action in the UK market

The full list of supply chain challenges reported by UK manufacturers in the Make UK report were:

Among the supply chain vulnerabilities reported were:

  • Component and raw material scarcity
  • Price increases due to disrupted energy and fuel access
  • Supplier delivery delays (on-time performance)
  • New trade complexities with overseas suppliers (tariffs and regulation)
  • Fluctuating customer demand
  • Geopolitical trends - commercial effects of international events

How supply chain vulnerability hits the bottom line

All of these problems can rapidly increase COGs (Cost of Goods Sold), as well as affecting reputation, compliance, and future business with customers.

We’ve seen how the price of consumer electronics can skyrocket or car production halt because of broken links in a complex semiconductor supply chain.  

Likewise, we’ve seen the price of everyday items and services increase with rising energy costs triggered by the war in Ukraine and uncertainty in oil-producing regions. In this environment, the ‘just in time’ approach to meeting the challenges of supply and demand has been severely tested.

In fact, according to Make UK, 80% of manufacturers now say that supply chain vulnerabilities are a significant strategic risk

More regulatory reasons to act

Parallel to this, we’ve seen an awakening of conscience in the West about the exploitative nature of many of our supply chains. Investigations have shown how, out of sight, in faraway countries, minerals are extracted at enormous human cost, while the environment is trashed to bring us products at the lowest price possible.  

This has led to regulations like the EU Supply Chain Act demanding manufacturers take action to prevent pollution and human exploitation throughout their supply lines. As a result, many electronics OEMs are looking for more transparent and reliable sources for their critical materials.

What are manufacturers doing about it?

A combination of international events, rising costs, and impending regulation has forced OEMs to reassess their visibility and control over international supply chains.

But a recent report by Gartner has pointed out the complexity of keeping supply lines flexible, cost-effective AND sustainable. They concluded:

“This transition necessitates a careful balance to keep costs reasonable… alongside the capability to prepare for a variety of potential scenarios”

Derisking the supply chain can be an expensive undertaking.

What are the mitigating strategies that manufacturers are taking?

Make UK concluded that the majority of manufacturers were either exploring or implementing supply chain mitigation strategies in 2023:

Two of the most common mitigation strategies involved looking at the make up of contracts with suppliers to achieve more flexible/stable supply relationships. The third most common strategy was to improve and increase supply chain monitoring to improve capacity for agile planning.

In one surprising stat, Make UK also found 44% of manufacturers were looking to reshore significant elements of their supply chains.

Drives to reshore and near shore

The study found reshoring and nearshoring were proving popular ways to regain visibility and control over supply chains, despite the historic cost efficiency of off-shoring.

There are many choices OEMs have before them as they look to improve their supply chain resilience.

Consolidate or diversify?

In the Make UK study, more than half of the manufacturers said they had changed supplier concentration:

  • Almost one-third had increased the number of suppliers
  • Two in five had reduced the number of suppliers

For some, achieving supply flexibility by playing partners off against each other lets them hedge their bets in times of strain and shortage. Other companies have seen deeper contractual commitments as the key to securing strong and stable supply partnerships.

Should OEMs consider end-to-end outsourcing?

Many supply chain challenges could be overcome by switching to a single EMS supplier who can assume the risk and responsibility for complex supply chains while leveraging economies of scale.

Less risk and less complexity for OEMs

For manufacturers designing, developing, and manufacturing their own products in house, outsourcing production can be the ultimate consolidation step. And letting experienced procurement experts with deep knowledge of global supply chains take responsibility for managing uninterrupted access to components. Resources and labour can be a massive relief in times of constraint. It can also make the most commercial sense.

After all, their entire business model should be based around getting the best deal on materials, managing component obsolescence, and (with the new EU supply chain act) ensuring the most sustainable and ethical supply lines.

Improve tracking capabilities

Working with partners up and down the value chain to track and monitor supply is becoming increasingly important. But do OEMs really want to manage multiple pieces of supply software on their own, or even integrate data from multiple platforms to give them the overview they crave?

Switching to a single, trusted EMS supplier should give you a single point of digital access to all the information you need around availability, delivery and order status throughout the supply chain. EMS suppliers are bringing extraordinary digital capabilities to bear on this problem, offering AI powered solutions to make the entire chain more visible to their clients.

Your EMS supplier should also give you regular updates with full transparency about component and material availability, delays and upcoming issues in continuity, to help you manage your pipeline effectively.

Find a ‘best shoring’ solution

Reshoring is a surprising trend for UK manufacturers, but it demonstrates how important proximity and risk reduction is to outsourcing relationships right now. But looking for a 'best shoring' solution through an EMS supplier could help OEMs lever the benefits of global supply lines while mitigating their most serious risks.  

Choosing a supplier with a range of locations, regional specialisms, shared goals, and technical capabilities means they can use the most appropriate facilities around the world for your projects. It means your supplier will be alive to all their options for sustainability. But with local account managers and facilities available you can have servicing support and face-to-face contact within reach if and when you need it.

Conclusion

One thing is for sure, unpredictability in the global supply chain is not going away anytime soon. The Make UK report shows manufacturers need a change in mindset to increase their ability to deal with challenges as they arise:

“Volatility has become the norm as a series of geo-political events and supply chain disruptions increase and follow back to back. This is leading manufacturers to rethink their supply chains and develop new processes to manage the ongoing volatility. There are several trends we are seeing in supply chain management as manufacturers move away from a just-in- time model to a just-in-case mentality.”

OEMs aiming to boost visibility and control in their supply chains should consider consolidating production with a single EMS supplier. This move can help achieve these goals, prevent cost escalation, and reduce the money and time spent on supply chain administration.

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Written by Neil Sharp

Neil has over 25 years’ experience in Electronics Manufacturing Services and Component Distribution. During his career, Neil has held a range of leadership positions in sales, marketing, and customer service. Neil is currently part of the ESCATEC Senior Management Team and is responsible for setting and delivering the overall Group Marketing strategy. Neil heads up the marketing department and is responsible for both the strategy and the implementation of innovative marketing campaigns designed to deliver high quality content to those seeking outsourcing solutions.