Today’s global supply chain challenges demand some creative solutions.
In recent conversations with global supply chain executives, it seems like everyone I talk to is complaining about the performance of their Asia Pacific suppliers. Extended lead times, large lot size requirements, and missed deliveries are increasing costs and jeopardizing future sales to their customers. This is especially true for consumer goods companies.
In today’s Internet-speed marketplace, where Amazon routinely provides next-day deliveries—and now offers same-day delivery in some cities—there is no let-up in sight for rising consumer and retailer expectations. Addressing these customer demand and supply chain challenges requires new and creative solutions. Before describing a couple of these solutions, here’s a summary of some of the common complaints I’ve been hearing from global supply chain managers:
- Late supplier deliveries are causing late shipments and missed stocking windows at retail customers.
- Inadequate planning systems and practices can’t support ‘fast lane’ performance for high priority orders.
- Large lots sizes build too much inventory, and too much of the wrong inventory.
- Long development cycles and slow supply chain response times can’t respond to the increasingly compressed time expectations of retailers and consumers.
- Cost-of-goods manufactured is increasing, shrinking margins.
- The increasing importance of service parts and lengthened warranties for durable goods is increasing requirements for small lot sizes, which is at odds with normal demand.
- Those are some of the major challenges. Here are some additional trends and observations that bring these challenges into clearer focus, and begin to reveal some opportunities:
- Production and labor costs are rising across Asia, especially in China. Manufacturing companies are struggling with the increased costs. While they were initially able to pass along these costs to their customers, this is becoming less of an option.
- Productivity is improving across Asia, but still not at the same rate as in North America.
- Labor costs are stable in North America, or increasing at a much slower rate that Asia.
- Service parts, long overlooked, is an increasingly important source of margin and net income.
- Flexibility, not just mass production, is becoming more prevalent and a competitive differentiator for Asian companies.
To address these challenges and take advantage of some of the emerging opportunities, U.S. and European companies need to get creative with their global supply chain strategies. For example, a consumer goods company that we work with was struggling to get adequate shipments from their Asian suppliers, and faced the real potential of missing the winter holiday stocking windows of their large retail customers.
The solution in this case started with drastically altering the planning process. Instead of placing large orders and following a single production model, they created a plan for every part and adjusted the production model between Asian suppliers based on volume and flexibility. In addition, we helped them work directly with these suppliers to transform their manufacturing processes in order to make more products at a significantly lower cost. As a result, in less than one quarter, the company’s Asian supply chain was completely transformed and able to successfully meet end-customer demands at a lower cost.
Here’s another creative supply chain solution. A pump manufacturer that TBM works with was routinely pushing aside service part production for new product orders, which disrupted their supply chain. This contributed to long lead times and missed deliveries of service parts. Ultimately, their poor performance created an opening for more responsive “knock off” competitors to meet the demands of their customers. The first thing we did was analyze their product portfolio. Even though service parts accounted for less than 10 percent of revenues, and despite the fact that the company was neglecting that side of the business, those parts accounted for up 40 percent of their margins. Turning around the situation required a series of moves:
- First, the executive team outlined a service parts strategy and established accountability for performance.
- Second, we helped them setup flexible work cells both at suppliers and internally to support lower volumes.
- Finally, they second sourced production of some service parts to North America, or brought them in-house.
In the end the part costs on a per unit basis were sometimes higher, but this was more than offset by increased margins and volume as their service business grew. They also reaped the carrying cost benefits of being able to maintain lower inventory levels while simultaneously improving parts availability. Because of the success of the supply chain effort, the company was able to penetrate and re-capture customers and market regions, netting an increase of over 70 percent in service revenue.
These are only a couple of solutions to today’s global supply chain dilemmas. Whatever your situation may be, try thinking about these challenges and opportunities in a different way, and doing the heavy lifting to shift the global supply chain inertia.