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Are Manufacturing Supply Chains Ripe For Renewal?

Posted By Paul Tate, July 30, 2013 at 7:04 AM, in Category: Global Value Networks

Fundamental shifts in market demand, the emergence of close-to-market production strategies, and the need to reduce global risk are beginning to transform modern manufacturing supply chains, agreed a senior group of Manufacturing Leadership Council members during their latest debate on the way forward for global manufacturing.

“As China slows down and western markets pick up again, everyone is trying to tighten up their supply chains and re-evaluate where they are,” explained one Manufacturing Leadership Council member from a large global electronics manufacturer 

“Consumers are moving quicker and they want to get what they want, when they want it, instead of putting products on boats for weeks, ” he continued. “I call it the Amazon effect – the ability to get exactly what you want, and very quickly. In years past, it was easy to take care of U.S. customers from Asia or Eastern Europe. Now we are getting lots of questions about other models we should consider.”

One of the underlying driving forces of this change is that many customers are no longer prepared to invest their hard-earned capital in inventory. They want to run lean and agile to cope with rapidly changing market demands. And that puts increasing pressure on manufacturers to adopt faster-response, make-to-order production strategies closer to their end markets.

“A lot of manufacturers are now eliminating inventory and moving to build to order, instead of sitting on finished goods,” agreed another Council member from a major manufacturing software provider. “That’s why companies are looking now closely at their supply chain and how deep it is. If it is too deep and has too many potential risks, they are trying to pull it in and make it a more collaborative. So companies are now talking to their suppliers and sub-suppliers, maybe 15 to 20 levels down the chain with a detailed bill of materials so they actually know all the ingredients that are going into of every component of their supply chain. Then they are seeking ways of bringing this work closer to markets that are near their end consumers.”

However, that can create major challenges for some enterprises as they try to balance rapid-response, short term demand with longer-term supply chain design. As another Manufacturing Leadership Council member explained: “This shift in demand means we need to redesign our supply chain to respond to that shorting cycle, with less inventory in the pipeline, and increasing market segmentation. There are a lot of different variables to contend with. The challenge is to adapt on the fly - first to serve the immediate customer needs, but also to build a more sustainable, responsive, reliable supply chain process for the longer term, both for the U.S. and globally. It’s challenging, but in order to survive and continue to grow, we have to respond accordingly. “

Rising quality control issues in foreign outsourced operations are another concern for some companies. “A big part of our supply chain is out of China,” explained one Council member from a global networking company. “But as China slows down, we are now starting to see some quality issues work into the supply chain, and maybe some corners being cut. It has become one of the big concerns I deal with every day. We are watching this very closely. “

Meanwhile, new network-based technologies like the cloud, combined with more standardized global production systems, are allowing companies more flexibility in the rapid-deployment of new production plants around the world.

“Companies are shifting their decisions very rapidly right now,” added another leading Council member. “One day you may be manufacturing in China. The next day you are moving your manufacturing to Malaysia, Bangladesh or some other economically-advantaged area of the world. In order to do that, companies have to pick up and move fast and make quick decisions. You can’t take 2 or 3 years and 10 million dollars to put in a new IT investment. Using applications on the cloud is one of the quickest, fastest ways to bring up production, bring in your suppliers, and better communicate and collaborate with your supply chain. It’s a way to be agile, lean and nimble. “

But having the technology to re-deploy production quickly and to redesign supply chains around more collaborative models, is not the only issue. As is often the case in any transformation, it is the combination of technological and cultural change that will ultimately determine the success of any new supply chain strategy, warned one Council member from a large U.S. based manufacturer.

“Advancements in technology are certainly helping companies making it more efficient to move production faster,” he noted. “But along with that goes the organizational changes, the new thinking and the new structures needed to support those swift changes.  At the end of the day, you have to bring the people along too. As you globalize, you need to focus on cultural alignment and clarity to bring the team along as well and get people to operate effectively in the new structure. That’s probably one of the biggest challenges for the future.”

Yet despite the potential challenges and difficulties that may lie ahead, many Manufacturing leadership Council members remain inspired by the prospect of widespread supply chain renewal. 

As one Council member summarized: “I think we are all trying to figure out how we cope with these new supply chain ideas. It’s pretty exciting actually.“

Are you now re-evaluating how you structure your supply chain?

What’s driving that transformation in your organization?

How do you see manufacturing supply chains developing in the years ahead?

Written by Paul Tate

Paul Tate is Research Director and Executive Editor with Frost & Sullivan's Manufacturing Leadership Council. He also directs the Manufacturing Leadership Council's Board of Governors, the Council's annual Critical Issues Agenda, and the Manufacturing Leadership Research Panel. Follow us on Twitter: @MfgExecutive


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