What can we do to make our global manufacturing supply chains more resilient in the Post-Covid world?Covid-19 is continuing to have a serious effect on much of global manufacturing, with slumps in demand, supply chains failing and factories disrupted by the need for social distancing.
The shocks of the last few months will continue to reverberate up and down the value chain for years to come, with costs escalating, confidence dented, contracts moved around, and inevitable business casualties.
So, things have changed and are going to change more. But as this article in the Harvard Business Review points out, there are some realities that will stay the same:
“Consumers will continue to want low prices (especially in a recession), and firms won’t be able to charge more just because they manufacture in higher-cost home markets. Competition will ensure that. In addition, the pressure to operate efficiently and use capital and manufacturing capacity frugally will remain unrelenting.”
Much as Donald Trump would like more protectionism and a return to complete national self-sufficiency in manufacturing, the reality is skills and materials are distributed and accessed from around the world with good reason. Globalisation has been a force for good in terms of financial and technological progress - and clearly makes sense in many ways.
But Coronavirus has shown up real weaknesses and vulnerabilities in the sourcing of materials and components, as well as the way products are manufactured and distributed around a global ecosystem.
So, how should the manufacturing world respond to the lessons of the current crisis? What can be done to make our global supply chains more secure and resilient, while keeping a focus on efficiency and profitability? Here is some of the latest advice emerging from the experts:
1.Understand your vulnerabilities
Mapping your supply chain, understanding what dependencies exist in each tier will give you complete visibility of where things might go wrong.
What components or raw materials are you (and your suppliers) dependent upon to deliver your end product? As WC Shih says in the HBR:
“It’s vital to ascertain how long your company could ride out a supply shock without shutting down, and how quickly an incapacitated node could recover or be replaced by alternate sites when an entire industry faces a disruption-related shortage.”
The investigation is going to be complex and resource hungry, but it will give you the detail you need to plan effectively for particular shortages or disruption. Any EMS provider you use should help you to map, understand and mitigate these risks in their crisis planning.
2. Diversify your supply base
The obvious way to mitigate the risk of a failure of one or more suppliers is to diversify your supplier list, ideally within different countries. The current animosity between the US and China has encouraged some US companies to adopt a ‘China + 1’ policy, spreading production partners between China and at least one other South East Asian country. Of course, that’s not going to necessarily help when a crisis hits a particular region, but the range of options available to you in a competitive global market place, means that you do have more options than ever before for spreading your bets to ensure continuity of supply. Understanding how any EMS provider is managing risks of this kind should give you confidence that they can weather any potential storm.
3. Store intermediate inventory or safety stock
Make a plan to determine if, and how much stock, you should have in reserve to keep operational in a volatile market. Work out which materials or components are vital to your smooth operation and at particular risk of shortage or disruption. The building up of buffer stocks isn’t exactly in the spirit of the ‘just in time’ and it does present the risk of being saddled with stock piles of obsolescent product and materials. However, when done right it can be a sensible precaution in an unpredictable world as we shift between states of lock-down and full operation.
4. Explore the potential and possibilities of re-shoring
There is definitely a mounting case for re-shoring to offset the risk of global breakdowns in supply. This is never going to completely shut down the need for international supply chains, but there is now more opportunity than ever for some traditionally off-shored processes to be re-shored in an economically viable way.
Additive manufacturing, automation and a mix of technology and highly skilled operatives in certain industries in the UK are making re-shoring to this country a much more attractive option. And with the added security this can bring to the supply chain and local distribution routes it’s worth considering where appropriate.
The manufacturing supply chain is clearly going to remain a global business and there are benefits to retaining a strong international presence if you are going to gain access to new and growing markets.
However, there are steps you and any EMS partners you use, should be taking to protect yourselves from the effects of future supply crises. There are different opportunities emerging around the world and being flexible in your approach should keep the wheels of your business turning even if the worst happens. Again.