- By Louis Columbus
- December 21, 2020
Among the most effective supply chain strategies manufacturers can employ are creating more ways to collaborate, managing costs more effectively through shared incentives, and increasing supplier visibility to facilitate compliance and mitigate risks. Let’s look closer at each of these strategies.
This year has placed unprecedented strains on supply chain relationships, from managing costs to ensuring availability and quality. It has also put a spotlight on the need for manufacturers to implement supply chain management strategies resilient enough to withstand challenging economic times yet efficient enough to support new markets. Among the most effective strategies manufacturers can employ are creating more ways to collaborate, managing costs more effectively through shared incentives, and increasing supplier visibility to facilitate compliance and mitigate risks. Let’s look closer at each of these strategies.
Create more ways to collaborate
Creating more opportunities to collaborate with suppliers starts when manufacturers share real-time insights about customers, market conditions, and current roadmaps from product management, along with new products being developed. To provide this information at scale, manufacturers continue to invest in digitizing their supply chains. In fact, many of them report that the pandemic has spurred them to accelerate their digital supply chain roadmaps by five or more years within the last six months.
Building a digital supply chain often starts with the collaborative planning and forecasting applications that suppliers and manufacturers rely on to share materials requirements for production based on sales forecasts. The first phase of digitizing the supply chain also includes warehouse management systems (QMS), transportation management systems (TMS), and real-time planning integration to the product line level. It is rare to find these functions being done with an analog approach today given the social distancing requirements the pandemic has created and how crucial speed and time-to-market are for most manufacturers.
The second phase of creating a more digitized, collaborative supply chain starts with sales and operations planning (S&OP) integration. Manufacturers will also integrate suppliers into demand planning systems for their multi-channel selling and service networks in order to reduce information latency to zero with real-time integration across all their channels,
In the most advanced digital supply chains, it is common to find shared data integrated with product lifecycle management (PLM), customer fulfillment, and aftermarket services systems. By providing real-time integration into PLM systems for their suppliers, manufacturers can share a real-time data stream of how the bill of materials (BOM) and sourcing requirements are changing for a new product. Advanced electronics industry supplier collaboration networks have been the first to adopt these approaches, but other manufacturers are following suit.
Manage costs more effectively
Pricing is by far the most powerful lever to use in maintaining profitability. Manufacturers are looking for new ways to collaborate with suppliers to better control costs through shared incentives. For example, real-time access to data from demand planning systems is highly valued by suppliers, since this information is essential for knowing when and where they need to deliver components, subassemblies, and materials to support production.
The pandemic has made pricing a high priority across all supply chains, since competitors will often drop prices to drive more sales. However, setting off a price war wastes margins. Instead, manufacturers can better protect profits by stabilizing pricing while maintaining better cost controls with suppliers. According to McKinsey it would take a 7.5% reduction in fixed costs to achieve the same 22% increase in earnings before interest, taxes, depreciation, and amortization (EBITDA) that a 1% increase in pricing achieves.
By collaborating with suppliers in real time and keeping cost data up-to-date, accurate and competitive, manufacturers don’t have to drop prices and could potentially increase them. It all gets back to having real-time integration across accounting, finance, production, sales and service data that manufacturers can share with suppliers, so together, both can better manage pipeline, backlog, and order management decisions.
Increase supplier visibility
The heightened priority on health and safety is leading to a track and tracing renaissance across all manufacturing sectors today as every business strives to keep its employees, customers and suppliers safe. In response to COVID-19, manufacturers are fast-tracking their adoption of track and traceability systems capable of reporting multiple layers deep into supply chains. Periodic supplier audits are another cornerstone of any effective supplier risk mitigation and quality management strategy, particularly with the growing compliance and reporting requirements manufacturers face globally.
Improving supplier collaboration and visibility using track-and-trace reduces many supply chain risks. Most notable are the ability to improve order fulfillment accuracy and resolve potential quality problems early before they escalate through supplier networks. Track-and-trace improves quality by improving demand visibility from manufacturers to suppliers, averting incorrect and low-quality orders. Most importantly, track-and-track brings exceptional speed and scale to reducing risks across supplier networks and protecting customers by providing real-time responsiveness to recall, product quality, and counterfeit product issues.
Manufacturers are looking to reduce risk and increase revenue, and data is the best antidote against fear and panic. It provides guardrails, guidance, and insights that lead to better decision-making and, in the case of pricing, preserved margins. The more integrated accounting, finance, production, sales, and service data are, the better the pipeline, backlog, order, margin and revenue decisions every manufacturer will be able to make. Moreover, by sharing these real-time insights across their digital supply chains, manufacturers and suppliers can collaborate to enable their mutual success, growth and profitability.
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