Leaders at small to midsize (SMB) manufacturers are in a challenging position as they look to restart operations after Coronavirus (COVID-19) shutdown orders are lifted. The reality, whether we like it or not, is that COVID-19 has changed us as people and it’ll change the way our customers approach business. As the US looks to fire back up its industrial economic engine, it’ll do so in a different world. Therefore, we must quickly embrace our new normal and reduce supply risk if we’re to thrive in the days ahead.
Up to this point many manufacturers have approached supply risk during sourcing as intellectual theory, therefore it’s rarely applied. Our quest for lower-cost parts has led us to prefer capturing cost savings that immediately improve our bottom lines while discounting future risks. Traditional, cost-down global procurement efforts to low-cost countries often amplify supply chain risk and are often based on landed costs without considering the additional inventory and increased supply chain disruption costs. But despite major global supply risk events of the past decade, many leaders still found themselves ill-prepared for our current crises.
As a wide range of industries turn on production lines, they’ll do so with strained supply bases. For example, a tier II automotive supplier of seat structures could have suppliers producing steel tubes in the United States, hinges in Canada, screws in South Korea and fasteners in China. The harsh reality is that each of these countries, and respective suppliers within their borders, are being impacted by COVID-19 and the current recession in different ways. Headwinds range from cash flow issues to staffing shortages, to delivery delays.
Existing, conventional Supply Chain Risk Management (SCRM) evaluation tools utilize “lagging” financial indicators (e.g., cost trends, profit margin, sales growth, etc.) and are reactive, using indicators like percentage of on-time deliveries or quality. These might be useful for helping with supplier development efforts, but they lack supply chain risk assessment due to unforeseen disasters or happenings – i.e., COVID-19.
Now is the time to assemble your game plan for successfully combating these supply risks head on. Below are several proactive supply tools to systematically identify risk and ensure uninterrupted supply.
SMB Proactive Tools to Mitigate Supply Risk
1. Supply Performance Software
Supply Performance Software is an Agile Supply Chain tool for accelerating communication, collaboration and visibility within your organization, customers and supply base. During unique events such as COVID-19, where onsite working and supplier monitoring is limited, Supply Performance Software with data request, delivery and monitoring capabilities should be prioritized.
Strive to secure cloud Software as a Service (SaaS) that has the ability for you to rate suppliers based on your unique criteria. Key features to look for are Agile Task Management, Automated Plan For Every Part and supplier intelligence databases that will organize your data into actionable information.
Common high-level supplier performance metrics you’ll want to track are cost, quality, delivery and service. Further, mapping your suppliers and backup supplies by spend type – e.g., aluminum brackets – and product bill of materials (BOM) will give you the detailed data to proactively identify and remediate supply risk.
2. Technology Enabled Services
Many SMB manufacturers simply can’t justify hiring additional full-time team members to manage supply risk in our current recessionary times. Technology enabled services firms combine professional teams with focused software solutions to provide a lower-cost support model than hiring a full-time team.
Select firms provide on-demand technology enabled services such as Supplier Quality as a Service (SQaaS) and partner with SMBs to proactively monitor suppliers to remediate supply issues as they arise. Technology enabled services from experienced supplier risk management firms also tend to provide unique speed and scaling advantages where they can quickly increase the amount of support needed to remediate a supply disruption event to mitigate downtime. SMBs experience substantial results utilizing on-demand support models typically saving a multiple of 1-2x above the cost of support.
3. Technology Enabled Managed Services
Day-to-day supply chain management of recurring indirect supply needs like office supplies, maintenance repair and operations (MRO) and service parts are critical to the ongoing success of your business. Basic, mundane items such as paper towel, cleaning supplies, and personal protective equipment (PPE) are now difficult to procure as available supply is being seized by healthcare systems battling COVID-19. Consequently, it’s more time consuming and costly to manage indirect suppliers, communicate order statuses and combat rogue spending, all while trying to optimize supply costs.
New mobile application software paired with experienced supply chain professionals – e.g., technology enabled managed services – often referred to as Supply Chain as a Service (SCaaS), can reduce indirect supply risk while optimizing costs and timing. Plus, SMBs can enhance indirect spend control with fixed supplier pricing lists while improving the internal purchase experience with user-friendly one-button ordering. Typically, SMBs will see cost reductions up to 37% by tapping into the SCaaS firm’s greater buying power, freeing up their team’s time.
Thriving Through the Recession Storm
The world we thought we knew is now dramatically different. As we awaken our manufacturing plants it’ll be up to us to embrace the changes that are unfolding. Therefore, we must seek out new tools to address the way our businesses create value so that we can thrive in our new environment. SMB leaders who proactively embrace tools to reduce supply risk will simultaneously improve organizational agility and profitability throughout this current recession.