How to use Supply Chain Collaboration to Minimize Disruption
Supply chains have been battered and derailed since the 2019 pandemic began spreading globally. As product brands retool their supplier base for resiliency, they are also navigating uncertainty caused by COVID-19, the war in Ukraine, inflation, and trade disputes. So it’s not surprising that 84% of CFOs say supply chain disruption is their biggest business risk, according to a 2022 BDO survey.
Manufacturers are addressing these challenges by fostering collaborative relationships with key suppliers. Instead of keeping suppliers at arms’ length regarding business priorities and plans, manufacturing brands are using their expertise throughout the new product development process and ensuring access to critical materials and components.
This business model is so ubiquitous in Japan that keiretsu refers to close product-supplier relationships focused on continuous improvement and shared success. Businesses that adopt strategic supplier relationships can outperform their industry competitors by nearly 2X, according to McKinsey.
Here’s how you can collaborate with key suppliers to increase growth and lower operating costs.
Rethink Supplier Relationship Management
Your criteria for key suppliers may shift as you diversify your supply base, re-shore targeted operations, or take other risk mitigation steps. The Harvard Business Review proclaims that the era of “far-flung global supply chains is probably over” and that manufacturers are shifting to a regional sourcing and production model.
Stanley Black & Decker, for example, sources materials and parts close to its factories whenever possible. This approach prioritizes tier-one and tier-two suppliers differently than a multinational brand that sources and produces its products in Asia.
Review how your current supply chain priorities align with your tier-one and tier-two suppliers’ capabilities. And conduct a supply base audit for resiliency, which can include:
- Determine if there is a regional overreliance on suppliers and redistribute as necessary
- Address shipping and logistics roadblocks. (E.g., avert congested West Coast ports by procuring and manufacturing products in regions that can ship directly to ports with capacity)
- Evaluate alternative countries for sourcing and manufacturing
- Identify new suppliers and evaluate alternative manufacturing methods
Chart a Course for Long-term Success
Manufacturing brands frequently enter supplier partnerships to secure scarce materials or manufacturing capabilities, but they don’t evolve these relationships. Target select tier-one suppliers to expand relationships in areas that include:
- Create a Blueprint for Mutual Success: Reexamine how to incent your tier-one suppliers. Consider long-term contracts and investments in supplier equipment that provide you, the OEM, with a business advantage.
- Enlist Key Suppliers During Product Design: In pre-award situations, manufacturing brands and suppliers often work cooperatively to improve designs and processes. But once contract pricing is finalized and the design reaches a specific phase, the two groups often work separately. Or, a supplier is selected during the latter stages of the new product development process, when they have limited input because it is costly to make late-stage design changes. OEMs that involve key suppliers from project kick-off to product launch can unlock hidden value.
- Foster Transparency: Understanding each partner’s capabilities is central to a collaborative relationship. OEMs can work more effectively with their vendors when they have a full view of the suppliers’ capacity. Manufacturing brands can design products for a supplier’s specific production capabilities. And they can also use digital factories of their suppliers to simulate production runs and identify optimal manufacturing processes.
- Update your Cost Models: Use open-book pricing with your supplier to reevaluate blended rates, and use should cost market data to calibrate material costs. Design for manufacturing (DFM) simulation can also identify opportunities to improve machine utilization and boost efficiency.
- Measure Supply Chain Sustainability: Nearly 50% of CEOs cited sustainability as their highest priority, according to a 2022 IBM study. And pressure from the boardroom, regulators, and investors will likely continue to grow. Manufacturing brands that act now to measure their CO2 emissions throughout their supply chain (Scope 3) will be well-positioned to implement effective sustainability solutions.
Cut Procurement ‘Red Tape’
Digitization/Industry 4.0 advances are bringing new levels of efficiency and automation to the factory floor. But the procurement and quoting process is still overwhelmingly manual. To underline this point, an SAP survey revealed that procurement teams spend more than half of their time on transactional activities.
Forward-thinking manufacturers are digitizing the cumbersome and time-consuming supplier qualification and (request for quote) RFQ management processes. Manufacturers that can share detailed product information securely and digitally can get suppliers up and running quickly. Effective solutions to fast-track brand and supplier collaboration include:
- Go Digital: Working from written (2D) manufacturing part information requires suppliers to recreate the design in 3D CAD. And this inefficient process doesn’t provide suppliers with the detailed product and manufacturing information (PMI) required for precise quoting. Instead, manufacturing brands that use the digital twin and digital thread in the RFQ process save time and benefit from increased quoting accuracy.
- Automate Procurement: Adopt Zero RFQ capabilities that enable brands to send POs to suppliers quickly and efficiently. Once both parties have established a type of master service agreement (MSA), OEMs can execute quoteless sourcing with trusted suppliers without lengthy negotiations for every project contract.
- Connect the Entire Process: Product brands often provide some digital sharing via product lifecycle management (PLM) and systems including enterprise resource planning (ERP). But they also have gaps between their product system of record and the procurement system of engagement. This break in the digital thread requires teams to retrieve information manually – such as raw material sources and standard component prices. Digitizing procurement operations provides authorized users with robust product data from all systems connected by the digital thread. This, in turn, helps to accelerate time to market and reduce risk.
- Simplify Collaboration: Replace unwieldy e-mail chains with a digital platform. Manufacturing brands and suppliers can use a collaboration portal that provides visibility, traceability, and access to updated product information.
Collaborate for a Competitive Advantage
Manufacturers fixated on procurement costs are susceptible to added risk if they haven’t taken steps to collaborate with key vendors. Suppliers in price-based arrangements typically don’t have the resources (or the inclination) to provide value-added insights to their customers. And they could leave your company for a competitor with better margins.
Companies that use their suppliers’ expertise and establish a mutually beneficial relationship can gain added resilience during challenging times. And they can capitalize on new opportunities rapidly as markets and industries evolve.