New Approaches to Supply Chain Resilience
Category: Supply Chain • By: Tim Shinbara, Vice President & Chief Technology Officer, AMT - The Association For Manufacturing Technology • Sep 3, 2021
The supply chain disruptions caused by the pandemic have caused many business leaders to question an exclusive focus on price point in sourcing and to examine the value of adding greater resiliency and visibility into their supply chain even though this may increase costs.
And some industry stakeholders have outlined scenarios in which the price of final products does not necessarily increase, allowing manufacturers to maintain price competitiveness. There are ways to amortize and offset costs, as well as lower costs in other areas of operations, to balance the increase in supply chain management costs.
Here’s a quick look at some of the current thinking on this topic.
Supply Chain Monitoring and Mapping
Advanced analytics and artificial intelligence (AI) functionality have now made supply chain monitoring applications more affordable and easily accessible. These applications can provide advanced notice of potential disruptions to product lines, giving companies the time to react and mitigate supply shortages by shoring up inventory, booking capacity at alternate sites, and controlling inventory allocations.
Supply chain mapping is another approach. Aided by technology applications, it involves working with your suppliers to identify and track their global sites and subcontractors, as well as the materials and parts that originate or pass through those sites. Companies that map their supply chains know exactly which suppliers, sites, parts, and products are at risk if there is a disruption, and this allows them to put themselves first in line to secure constrained inventory and capacity at alternate sites.
On the most basic level, manufacturers seeking to digitize all information and processes related to their supply chains create greater visibility. To date, some manufacturers have not seen this as a critical need, but it may be time to rethink this.
Prioritize Strategy over Short-Term Gains
Paul Ericksen, a former supply chain executive for John Deere, argues that the existing supply chain paradigm can benefit from a greater focus on strategy. Original equipment manufacturers (OEMs) do not usually address supply chain risk reduction in a meaningful way because executive-level performance goals (i.e., compensation) are tied to the price of company stock. Stock price increases when supplier piece-prices go down since this reduces the price of the finished product, thus increasing profitability. This incentivizes OEMs to focus the bulk of their supply chain resources on obtaining piece-price reductions and they stop there.
Ericksen recommends a more holistic approach, illustrating that a focus on making supply chain “lean,” through strategic analysis and supplier development activities, can make a supply chain more responsive to market demands and reducing an OEM’s reliance on finished good inventory. This can have a much more significant positive impact on financial results than a focus on piece price alone.
In conclusion, U.S. manufacturers do have choices about the future resiliency of their supply chains, as does the public sector. The pandemic has made clear the critical role that manufacturing supply chains play in ensuring U.S. national security, whether in terms of adequate medical supplies or any other scarce resource. The challenge is not too great to overcome.
For a more in-depth analysis of this topic, read the full AMT whitepaper here.
About the Author
Tim Shinbara is Vice President and Chief Technology Officer for AMT - The Association For Manufacturing Technology. He is responsible for strategic technology integration, international standards, and global collaborations regarding advancing the state of manufacturing technology. Mr. Shinbara focuses on activities related to research and development, industry adoption, and technology gap analyses. Mr. Shinbara is a Board Officer of the MTConnect Institute and has served on several committees and councils advising the public sector's manufacturing strategies, organization, and investment. He has over 19 years of combined IT/OT, manufacturing R&D, and tech start-up experience.