The pandemic sent numerous shock waves through the world of small and medium-sized manufacturers (SMMs), and perhaps the most lasting have been disruptions and changes in the global supply chain. Even in a "post-pandemic" world, SMMs are still dealing with the reality that increased uncertainty is now part of a recipe for running a successful business. Among those uncertainties is when, or even if, the supply chain will return to its previous level of stability.

A Different Way of Evaluating Risk

Supply chain issues are rarely straightforward for SMMs due to the numerous dependencies both upstream and downstream. Over time, some of the "what if" risks have materialized, pushing SMMs into uncharted territory. While cost remains a critical factor in selecting suppliers and customers, it is no longer the sole consideration. SMMs are now focusing on balancing cost with risk and supply chain resilience. The price of materials or parts becomes secondary when production and delivery delays affect customer satisfaction.

Today, supply chain issues are being approached much more strategically, akin to business insurance mindset. Reducing uncertainty comes with a cost, and there are always trade-offs. However, efforts to source domestic products and capabilities are revealing benefits that SMMs may not have previously considered.

Benefits of Domestic Sourcing and Reshoring

Many SMMs are pursuing domestic sourcing materials and supplies. These efforts also are referred to as supplier scouting, which is not new but previously has been viewed from ore of a tactical, problem-solving perspective. While many SMMs are urgently seeking to resolve ongoing supply chain issues, there is a significant shift in mindsets regarding supplier scouting.

Supplier scouting is increasingly being used for long-term domestic sourcing and second sourcing, which minimizes risk and increases options. The most obvious benefit of using domestic sourcing for materials and parts, rather rather than overseas suppliers, is that risk management begins much earlier in the process. The farther a part or material must travel, and the more touch points involved, the greater the risk.

In one recent example of global supply chain disruptors, a manufacturer was paying $5,000 per roll for material and shipping from China. However, shipping delays forced them to use air freight instead of ocean freight, raising the shipping cost to $7,500. Now, the manufacturer is trying to reshore that base material and source it domestically.

Reshoring also presents an opportunity to align your supply chain with business success. The benefits of domestic sourcing include:

• Reliability: Having overseas suppliers means living with tariffs, global politics and economies and natural disasters in faraway places.
• Trust: It's easier to establish a relationship with common languages, cultures and proximity, and relationships become critical during disruptions. Relationships are key in understanding if a supplier can grow with your business and innovate alongside you.
• Business Ethics: Concerns about overseas suppliers with intellectual property (IP), knockoffs and tooling are well documented. The U.S. has some of the strongest IP protections in the world, so working with a domestic supplier decreases the chances of IP theft.
• Total Cost of Ownership (TCO): Costs are the reason SMMs use overseas suppliers to begin with materials and workforce and significantly less expensive in Asia on a per unit cost basis. But part of the strategic shift is from SMMs realizing that the costs are considerable for freight, tariffs and time. Looking at the true – rather than just the per unit purchase cost – which includes overhead, balance sheet, risks, corporate strategy and other external and internal business considerations can help SMMs better evaluate sourcing.

Better Information Will Support Planning

One strategic approach to managing risks and minimizing supply chain gaps is a cross-departmental process known as SIOP - sales, inventory and operations planning. This is a cycle of forecasting, demand planning and capacity planning.

The demand plan begins with a forecast from sales, how it fits into company goals and capacity issues. This impacts material requirements. Knowing what is in the pipeline every month helps decision makers share knowledge about risks and what risks may be tolerable.

The operations side uses the demand plan to create a supply plan that considers both the capacity and resources available. They may go back to sales and ask to validate the forecast, which is confirmed or adjusted.

The SIPO process amounts to a monthly or quarterly cycle of:

• Demand planning
• Capacity planning
• Supply planning
• Sharing information with stakeholders
• Aligning the financial forecast with the business forecast
• Exposing any supply chain risks
• Action plans to mitigate risks

Accuracy in forecasting can be as much of an art as a science in many industries, but it is hard to make strategic decisions if your forecasting is at 50 percent accuracy. Eighty percent accuracy would be great; 70 percent works for many companies, but the better the information you have, the better your situational awareness, your ability to proactively address supplies, and the more predictable your supply chain can become.

What SMMs Can Do To Get Started With Supply Chain Strategy

Education is important for supply chain management, or any other facet of business, and focus, time and energy are big hurdles. Know what you don't know so you can get started with a simple three-step plan:

• Educate your team
• Find a trusted advisor
• Develop a plan

How Manufacture Nevada Can Help

At Manufacture Nevada, we can help analyze your supply chain and assess risks and cost drivers. For wanting help with expanding supply chain management, click here to schedule a consultation with one of our Business Advisors.

Content from this blog was sourced from California's Manufacturing Network.