Before Covid, the biggest supply-chain imperative for many U.S. manufacturers was developing and certifying “sustainable” sources of components and raw materials that would help companies address the growing environmental concerns of their customers, investors and employees.
Now that need for sustainability remains—but it has been outstripped for the moment by the simple fact that the pandemic and its impact on the economy have ripped apart many go-to-market systems, exposing new vulnerabilities in sourcing, logistics and even technology platforms that have manufacturing CEOs scrambling as never before.
“The pandemic didn’t really create any new barriers for supply chains, but the problems with many existing barriers all came to a head at the same time,” Allan Dow, president of Logility, and president and CEO of parent company American Software, a major provider of supply-chain software for manufacturers across the product spectrum, told Chief Executive. “With a hurricane, for example, you can find a way to work around the impact. But the pandemic had a whole bunch of stuff coming to light in one fell swoop.”
Dow has some advice for manufacturing CEOs as they continue to deal with a supply-chain scrambling that has become the No. 1 challenge of the day for many of them—and for how they can build safeguards and resilience into their operations that might prevent a future recurrence of today’s mess:
• Don’t count out China: The reality of hundreds of millions of dollars’ worth of Chinese imports sitting on container ships and floating off Long Beach, California, is a spectacle that is driving more manufacturing CEOs to look for any alternatives they can find to Asian sourcing of finished goods, components and ingredients.
But for many manufacturing chiefs, said Dow, “It’s impractical and knee-jerk to say you’re not working with China anymore. It has the biggest capacity to make things in many cases, and sole capacity in some cases. But do you diversify your supply chain with other countries? Maybe with some products. Can you build more resiliency into your supply chain and get better data surrounding some issues? For sure.”
• Reckon with just-in-time (JIT): One of the “lessons” of today’s catastrophic shortage of microchips for some U.S. manufacturers may be for chiefs to flee from just-in-time inventory systems that rely on thin stocks of components, to keep carrying costs down.
But Dow said “there’s no ideal answer to the problem” of how much manufacturing CEOs should curtail JIT, if at all. “Let’s figure out where the risk factors are, what is a reasonable shift that could be made to improve resilience and a company’s response to disruption. But it’s impossible to make [JIT] go away. You have to find the right balance.”
Specifically, he said, manufacturing chiefs must “identify risks and potential ways to mitigate risks and what is a reasonable economic approach” to that problem. “Do you buy a bunch of chips? Well, they’re not available, and you’ll end up with a lot that you don’t need because of product changeover. But should you have some more on hand? A few days instead of one day? Possibly. But it all comes back to having a digital model of your supply chain so you can simulate the risks, actions and reactions.”
• Adjust for the future: It’s understandable if manufacturing CEOs are pressing lots of buttons to try to pull their supply chains out of the soup right now. Or ordering a “study.” But Dow cautioned that neither approach will be effective in a situation that is “too dynamic. We know we’ll have disruptions—but we’re not sure what or when they will be.”
Instead, he said, chiefs addressing the supply chain should “build an operational model that allows them to sense what’s going on and respond, and make good decisions—and a model that can be sustained. You have to get smart.”
Yet, Dow said, manufacturers should immediately address a supply-chain situation that may suddenly seem more tenuous than they’d ever imagined—“start somewhere and get going, because things aren’t going to get any better.
“You’ll hear that the data aren’t ready or people aren’t ready, and you’re taking a big chance, and you’ll be nervous. But pick one or two things and get started. Maybe it’s change around a particular product line, or maybe around an aspect of visibility such as wanting to go two more tiers deep in your supply chain and get information about your vendors’ vendors, and their vendors. There are many different ways to attack it,” he says. “But not doing anything because you’re overwhelmed is an insufficient response.”
• Smash the silos: Dow described traditional supply chains as “broken into silos for the sake of simplicity and administration and management. There were teams that forecast future demand; there were people who ran factories that scheduled the factories that they ‘owned’; and a separate team was responsible for sourcing finished goods. The idea was that planners would be experts at what they do, the sourcing people would be experts at what they do, and so on.
“But that creates delays, inefficiencies and gaps in decision-making, and there’s no time for that. So you have to break down silos and go horizontal and say that you have teams in the supply chain that work on product lines, and they’re responsible for everything; what to bring to market, how much, where to make it, how often do you need it.
“It requires a rethink. It’s a change-management challenge.”