This article appeared in the March 2020 issue of MiMfg Magazine. Read the full issue and find past issues online.
Productivity, quality, efficiency and cost- effectiveness are four critical components of a successful manufacturer. Without these, a manufacturer can quickly fall behind, fail to gain ground and even be forced to shut its doors. Proper supply chain management (SCM) can help achieve all four goals. Strong SCM will boost your reputation and lead to a positive impact on your bottom line, stronger relationships with suppliers and customers and new and better products delivered faster and with higher quality.
“Improvement of supply chain management is the most universal opportunity I see for growing a business,” said Adam Kochenderfer, attorney for Troy-based law firm Wolfson Bolton, which specializes in supply chain management and other corporate issues. “Regardless of the industry, nearly every manufacturer’s margins can diminish if they are not paying attention to things such as raw material surcharges, late shipments and financially troubled suppliers. The good news is that a relatively standard set of best practices can improve virtually any manufacturer’s supply chain management and related costs.”
While each business is unique, all should look at:
- Where and how they source the raw materials from their suppliers and how those materials reach their facility
- Delivery and logistics of getting the product to the customer, either the end-use consumer or manufacturer further down the production line
- Internal manufacturing processes and how the areas they control (fully or near-fully) affects steps earlier or later in the supply chain
While much of SCM relies on improving technological processes or modernizing equipment to do things faster, cheaper and with higher quality, perhaps the biggest and most unheralded priority is communication and understanding how relationships affect everything in the supply chain.
“It starts with good relationships. With that as a strong foundation you can feel comfortable with making sure you are getting and giving fair pricing and the whole supply chain becomes part of your team,” said Jordan Thieme, director of operations for Amigo Mobility. “This also opens up communication and empowers the supply chain team to do what they can to lower costs and expedite processes.”
Relationship-Building: Along the Supply Chain
Open communication up and down the supply chain protects your business. The more trust that exists between business partners, the more effectively you can react in real time to sudden shifts in quality, economic or regulatory hurdles, changes to a company’s financial health or adjustments to contracts, pricing and purchasing orders.
“Supply chain partners play a key role in our ability to produce dependable, safety-critical products and deliver best-in-class technology, quality and value to our customers,” said Dennis Hoeg, vice president of Nexteer, a manufacturer of innovative intuitive motion control systems, and president of the company’s North American division. “We aim to be a partner of choice for suppliers, and the relationships we have with our supply chain partners are built on mutual loyalty and reciprocity. With nearly 1,000 suppliers across our global supply chain, ensuring this network of suppliers is effectively managed is vital to our ability to meet the needs of every customer, every day.”
Consider how your business relates to suppliers of your raw materials and the customers of the products you produce.
Relationship Building: Suppliers and Customers
Manufacturers can and should work with suppliers of their raw materials or products to maximize efficiency and reduce costs wherever possible. Too often, the supplier-client relationship is viewed as contentious when it is actually symbiotic.
“On new projects, we involve key suppliers at the very beginning of the strategy and design process,” said Thieme. “They talk with our Amigo engineers during the design phase to make sure we are making the parts cost-effective. Without those conversations, we may miss how a small change for us could have a large cost impact to our supplier and hurt the overall supply chain.”
As for ensuring you “get it right” the first time — essential to remaining efficient and cost-effective — follow these four key recommendations:
- Be as clear as possible about expectations and required specifications. Too many disputes arise due to what a supplier “should have known.”
- Promote open communication channels to address problems at an early stage.
- Establish agreements to incentivize suppliers and customers by sharing the economic benefits of cost savings if feasible.
- Recognize that the cost of raw materials can fluctuate dramatically and avoid disputes with surcharge adjustments into your agreements.
“For small and mid-sized manufacturers, a valuable practice to follow is to coordinate both with customers and suppliers at the outset of a relationship to set expectations. These expectations should not only consider quality, but issues such as sustainability that can also affect decision-making throughout the supply chain,” suggested Hoeg. “At Nexteer, we have a robust supplier portal containing the latest news, documents and information required for supplier partners to ensure consistency and understanding of requirements. This type of clear communication is crucial for both suppliers and customers as they work to develop long-standing and meaningful relationships.”
Remember, navigating supply chain relations can be the difference between successful, long-lasting partnerships and short-lived collaborations you end up regretting and that hinder future projects. Don’t turn partnerships adversarial if you don’t have to. You’re all working toward the same results and, often, improving a process at one point in the supply chain can lead to winning results all along the chain.
“You can draft the best contracts and create the best technological environments in the world but, at the end of the day, human relationships drive the business reality,” Kochenderfer observed. “The absence of trust between individuals creates a substantial portion of the disputes I encounter. Strong working relationships and open communication lines can often overcome technological problems in the supply chain if all parties are working toward equitable solutions.”
Getting Greater SCM Results
Manufacturers can improve their SCM by implementing internal improvements to existing processes. For example:
- Stay Agile: Today’s supply chain requires fast reactions in real-time. The more agile your business is, the better you’ll respond to market changes, overcome unexpected shocks along the supply chain and deliver more reliable sourcing, manufacturing and transportation.
- Innovate the Right Way: Every manufacturer can innovate but, when you rely on others along a supply chain, your innovations need to be done the right way and at the right cost. Changes without collaboration can result in huge gains or huge catastrophes. By discussing your most innovative ideas, you’ll be more likely to achieve strong results.
- Be on the Forefront of Technology: The right tech can do so much for your bottom line. Enterprise resource planning (ERP) software is a business management software that many businesses use to integrate everything along their supply chain from product planning and development to manufacturing and marketing. Consider utilizing a modern ERP system to improve critical qualities like automatic purchasing, standardization, increased transparency, better data insight and streamlined accounting.
- Underscore Sustainability at Home: Sustainability is a top priority for today’s manufacturers and their customers. Your operations can achieve sustainability goals through shared data analysis, compliance audits and implementing best practices. The more you prioritize it, the more your supply chain partners will, too.
- Be Reliable: Success in manufacturing requires attention to the tiniest details, so reliability is important. Work on continuous improvement, greater team management and better operational strategies to ensure your partners can count on you to accomplish your part of the process in the time required.
- Mitigate Risk by Asking the Right Questions: Many companies have single-source suppliers that operate under the “just-in-time” method, resulting in a heavy reliance on risk management. Ask yourself what would happen to your production if your supplier stopped shipments tomorrow. Could you find an alternative supplier in time? Would you need the approval of your customer to use that supplier? How much inventory do you have on-hand to manage the transition? Thinking through these consequential issues before a supply crisis may prevent missed shipments and countless headaches.
- Your Purchaser Matters: Encourage your purchasing manager to get out from behind their desk and learn everything about your manufacturing process. Their knowledge and experience can be invaluable when their role is utilized properly.
- Connect People and Processes: Sales and operations are core essentials for successful SCM. Look for ways to integrate your people, processes and technology into broader strategic planning. The more integrated your business is, the easier real-time changes can be made without risking safety, quality or cost.
Get Connected Along the Supply Chain
The manufacturing supply chain affects every aspect of your business. A great SCM can allow you to exceed your wildest expectations but a poor one can shorten a company’s lifespan by years or even decades. Whether it is communicating better across the supply chain or reimagining your facility’s existing processes, the seemingly small changes made today can lead to monumental growth and new opportunities down the road.
“Some of our greatest success has come as a result of the work we’ve done with suppliers and customers — our supply chain partners,” said Thieme. “Without approaching SCM as an absolute must for success, we wouldn’t be where we are today. It’s something any manufacturer can do, if they are dedicated to doing it. The rewards that come from developing a winning supply chain are real.”
For more information on creating your best supply chain strategy or to connect with proven supply chain experts, contact MMA at 517-487-8533.